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Accounting and Finance - Assignment Solved

   

Added on  2021-05-30

14 Pages2068 Words143 Views
Running head: ACCOUNTING AND FINANCEAccounting and FinanceName of the Student:Name of the University:Author’s Note:

ACCOUNTING AND FINANCE1Executive SummaryThe assignment has tow parts which are Part A and Part B. Part A of the assignment deals withSaturn Pet care which is engaged in producing products for pets. In recent business expansionstrategy, the company wants to introduce a new dog food product in the market and forproduction site option it has two available options which are Bathurst site and Wodonga site. PartA will be conducting Capital Budgeting Techniques for Selection of the best site for production.Part B of the assignment will be analysing the capital structure of ARB ltd and also compare thecapital structure with a similar company from the same industry. The assignment will alsosuggest an alternative capital structure for ARB ltd.

ACCOUNTING AND FINANCE2Table of ContentsPart A...............................................................................................................................................3Product Cannibalization...............................................................................................................5Excessive Sales Recorded............................................................................................................5Inclusion of Original Cost of Plant in NPV Analysis..................................................................5Part B...............................................................................................................................................5Introduction..................................................................................................................................5Discussions..................................................................................................................................6Capital Structure and Cost of Capital..........................................................................................6Weighted Average Cost of Capital..............................................................................................6Cost of Equity under CAPM........................................................................................................7Comparison between ARB ltd and Modine ltd............................................................................8Financial Ratios of ARB Ltd.......................................................................................................9Change in Capital Structure.......................................................................................................10Wealth Maximization................................................................................................................11Recommendations..........................................................................................................................11Conclusion.....................................................................................................................................12Reference.......................................................................................................................................13

ACCOUNTING AND FINANCE3Part AParticulars012345678910Initial Investment:Construction on Manufacturing Unit-$275,00,000Factory Building-$80,00,000Infrastructure Grant$25,00,000Total Initial Investment-$330,00,000Operational Cash Flow:Sales Growth Rate10%10%10%10%10%10%10%10%10%MAC30%30%30%30%30%30%30%30%30%30%Annual Sales$300,00,000$330,00,000$363,00,000$399,30,000$439,23,000$483,15,300$531,46,830$584,61,513$643,07,664$707,38,431Conversion Cost-$210,00,000-$231,00,000-$254,10,000-$279,51,000-$307,46,100-$338,20,710-$372,02,781-$409,23,059-$450,15,365-$495,16,902Rebate on Municipal Rate$5,00,000$5,00,000$5,00,000$5,00,000$5,00,000$5,00,000$5,00,000$5,00,000$5,00,000$5,00,000Depreciation on Plant & Equipment-$27,50,000-$27,50,000-$27,50,000-$27,50,000-$27,50,000-$27,50,000-$27,50,000-$27,50,000-$27,50,000-$27,50,000Depreciation on Building-$3,20,000-$3,20,000-$3,20,000-$3,20,000-$3,20,000-$3,20,000-$3,20,000-$3,20,000-$3,20,000-$3,20,000Net Profit before Tax$64,30,000$73,30,000$83,20,000$94,09,000$106,06,900$119,24,590$133,74,049$149,68,454$167,22,299$186,51,529Less: Income Tax @ 30%-$19,29,000-$21,99,000-$24,96,000-$28,22,700-$31,82,070-$35,77,377-$40,12,215-$44,90,536-$50,16,690-$55,95,459Net Profit after Tax$45,01,000$51,31,000$58,24,000$65,86,300$74,24,830$83,47,213$93,61,834$104,77,918$117,05,610$130,56,070Add: Depreciation on Plant$27,50,000$27,50,000$27,50,000$27,50,000$27,50,000$27,50,000$27,50,000$27,50,000$27,50,000$27,50,000Add: Depreciation on Building$3,20,000$3,20,000$3,20,000$3,20,000$3,20,000$3,20,000$3,20,000$3,20,000$3,20,000$3,20,000After-Tax Cash Flows$75,71,000$82,01,000$88,94,000$96,56,300$104,94,830$114,17,213$124,31,834$135,47,918$147,75,610$161,26,070Net Cash Flow-$330,00,000$75,71,000$82,01,000$88,94,000$96,56,300$104,94,830$114,17,213$124,31,834$135,47,918$147,75,610$161,26,070Cumulative Cash Flow-$330,00,000-$254,29,000-$172,28,000-$83,34,000$13,22,300$118,17,130$232,34,343$356,66,177$492,14,095$639,89,705$801,15,775Discount Rate22%22%22%22%22%22%22%22%22%22%22%Discounted Cash Flow-$330,00,000$62,05,738$55,09,944$48,97,987$43,58,845$38,83,079$34,62,590$30,90,412$27,60,539$24,67,783$22,07,650Payback Period (in years)3.863Net Present Value$58,44,567Profitability Index1.177YearsCapital Budgeting Analysis for Bathurst Site:Figure 1: (Figure Showing Capital Budgeting of Bathurst site)Source: (Created by Author)

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