Accounting and Finance Assignment on Investment Analysis and Cost of Capital

Running head: ACCOUNTING AND FINANCE
Accounting and Finance
Name of the Student:
Name of the University:
Author’s Note:

ACCOUNTING AND FINANCE1
Table of Contents
PART A...........................................................................................................................................2
Part B...............................................................................................................................................3
References........................................................................................................................................6
Appendix..........................................................................................................................................7
1) Investment Analysis................................................................................................................7
2) Increase in Variable Cost by 10%...........................................................................................8

ACCOUNTING AND FINANCE2
PART A
a) The after tax cash flows for the company are as follows:
Payback Period: The payback period calculated is around 2.86 Years.
PaybackPeriod Year 0 Year1 Year 2 Year 3 Year4 Year 5
Cash Flows -103,000,000 29,900,000 35,417,400 43,993,674 54,838,367 71,543,196
Amount Recovered -103,000,000 -73,100,000 -37,682,600 6,311,074 61,149,441 132,692,637
Time 0 1 2 0.86
PaybackPeriod(InYears) 2.86
Net Present Value: $99,991,969 (Appendix 1).
Payback Period: The payback period for the project was calculated to be around 2.86 Years.

ACCOUNTING AND FINANCE3
Profitability Index: The profitability Index for the project was around 1.00
Profitability Index: PV of Future Cash
Flow/Initial Investment
Present Value of Future Cash
Flows 99,991,969
Initial Investment
100,000,00
0
Profitability Index 1.00
b) The analysis done above for the project says that the cash flows generated by the project
investment will be creating a wealth of $99,991,969 for the shareholders of the company. The
management of the company should proceed with the investment project as the revenue
generated by the project investment will be sound enough to cover all the expenses and initial
investment well before the project life cycle, which was well addressed by the payback period of
2.86 years.
c) If the associated variable costs increases for the project then the same would be affecting the
net present value generated from the business that will be then coming around $81,631,601. On
the other hand, the payback period for the project will also be extended till 3.04 years.
d) If the project life for the project gets extended for a sum of 10 years then, the management of
the company needs to apply the profitability index as the best assessment tool for evaluating the
amount of return generated in every single dollar invested in the business (Magni, 2015).
PaybackPeriod Year 0 Year1 Year 2 Year 3 Year4 Year 5
Cash Flows -103,000,000 29,900,000 35,417,400 43,993,674 54,838,367 71,543,196
Amount Recovered -103,000,000 -73,100,000 -37,682,600 6,311,074 61,149,441 132,692,637
Time 0 1 2 0.86
PaybackPeriod(InYears) 2.86