This report presents the financial position and performance of Bitmap plc through ratio analysis and working capital cycle. It also provides investment options and capital budgeting techniques for Toyland ltd.
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Running Head: Accounting and Financial Management 1 Project Report:Accounting and Financial Management
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Accounting and Financial Management2 Contents Part A................................................................................................................................3 Introduction...................................................................................................................3 Case overview...............................................................................................................3 Ratio analysis................................................................................................................3 Working capital cycle...................................................................................................6 Conclusion and recommendation.................................................................................6 Part B................................................................................................................................7 Introduction...................................................................................................................7 Investment appraisal technique.....................................................................................7 Key benefits and limitations of investment appraisal techniques.................................9 Suitable source of finance...........................................................................................11 Part C..............................................................................................................................12 Budget definition and its link to business...................................................................12 Budgeting process.......................................................................................................13 References.......................................................................................................................14 Appendix.........................................................................................................................16
Accounting and Financial Management3 Part A: Introduction: The report has been prepared for the directors of Bitmap plc in order to present them about the financial position and performance of the company. In order to depict about the financial performance of the company, ratio analysis study has been presented on the company. Further, the working capital cycle of the company has also been prepared to measure the operational and efficiency performance of the company. Case overview: Bitmap plc is a London based company which manufactures furniture. Board of directors of the company are interested to know the significant changes in the company in current year from the last year. In order to measure the changes and its impact on the financial performance of the company, various financial ratios have been calculated. The study of ratio analysis is as follows: Ratio analysis: Ratio analysis is one of the most used financial analysis types. It is used by the companies, investors and the financial analyst to obtain quick information and indication about the financial position and financial performance of the company at various key places. Ratios are basically categorized as liquidity ratio, profitability ratio, gearing ratio, investor potential ratio and asset utilization ratio (Kaplan and Atkinson, 2015). The study over these ratios has been performed to measure the financial changes in the business and the performance of the company. Profitability ratio: Profitability ratios are one of the financial analysis methods which are used by the investors, stakeholders and the organizations to identify the ability of the business to generate the earnings against the revenues, cost of goods sold, operating cost, shareholder’s equity and total assets of the business (Romney, Steinbart, Zhang and Xu, 2016). In this report, return on capital employed and met profit margin of the company has been evaluated to measure the financial performance of the company. Return on capital employed measure the profitability position of the company on the basis of total capital available. In case of Bitmap plc, it has been found that return on capital
Accounting and Financial Management4 employed of the company is 36.43% and 35.31% in the year of 2016 and 2017 respectively. It depicts that ROCE of the company has reduced in current year because of higher capital (appendix). It concludes that business is required to improve the profitability position. Further, net profit margin measure the profitability position of the company on the basis of sales revenue. In case of Bitmap plc, it has been found that net profit margin of the company is 17.89% and 17.65% in the year of 2016 and 2017 respectively. It depicts that net profit margin of the company has reduced in current year because of lesser profit (appendix). It concludes that business is required to improve the profitability position. Profitability Ratios:20172016 Return on Capital employed Operating profit /6,8005,100 Capital employed (total assets - current liabilities) 19,26 0 14,00 0 Answer:%35.31%36.43% Net profit margin % Net profit /4,0603,220 Sales Revenue%23,00018,000 Answer:17.65%17.89% Liquidity ratio: Further,liquidity ratios have been calculated. Liquidity ratios depict about the liquid assets managed by the company to meet the entire short term debt obligation. In this report, current ratio and quick ratio of the company has been evaluated to measure the liquidity level of the company (Kiran and Singh, 2014). Current ratio measure the liquidity position of the company on the basis of total current assets available against the current liabilities. In case of Bitmap plc, it has been found that return on current assets of the company is 2.77 and 4.69 in the year of 2016 and 2017 respectively. It depicts that current ratio of the company has improved in current year because of current assets and lesser current liabilities (appendix). It concludes that business is required to reduce the current assets level. Further, quick ratio measure the liquidity position of the company on the basis of total quick assets available against the current liabilities. In case of Bitmap plc, it has been found that quick ratio of the company is 1.57 and 2.55 in the year of 2016 and 2017 respectively. It
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Accounting and Financial Management5 depicts that quick of the company has improved in current year because of lesser current liabilities (appendix). It concludes that business is required to reduce the current assets level to manage liquidity risk and operational cost of the business. Liquidity Ratios20172016 Current Ratio Current Assets /5,1604,150 Current liabilities 1,10 0 1,50 0 Answer:4.692.77 Quick ratio Current Assets - Inventory /2,8002,350 Current Liabilities 1,10 0 1,50 0 Answer:2.551.57 Gearing ratio: Further,gearing ratios have been calculated. Gearing ratios depict about the resources available and managed by the company to meet the long term solvency position. In this report, gearing ratio and interest coverage ratio of the company has been evaluated to measure the liquidity level of the company (Kurov and Stan, 2016). Gearing ratio measures the solvency position of the company on the basis of total debt available against the total assets. In case of Bitmap plc, it has been found that gearing ratio of the company is 22.21% and 16.67% in the year of 2016 and 2017 respectively. It depicts that gearing ratio of the company has improved in current year because of better management of resources (appendix). It concludes that gearing position of the company is average. Further, interest coverage ratio measures the gearing position of the company on the basis of EBIT available against the interest expenses. In case of Bitmap plc, it has been found that interest coverage ratio of the company is 10.20 and 6.80 in the year of 2016 and 2017 respectively. It depicts that interest coverage ratio of the company has reduced in current year because of higher interest cost (appendix). It concludes that gearing position of the company is average. Gearing Ratios20172016
Accounting and Financial Management6 Gearing ratio Total debt /3,5002,000 Total assets15,76012,000 Answer:%22.21%16.67% Interest Coverage Ratio EBIT /6,8005,100 Net Finance Costs(used net interest expense)1,000500 Answer: times p.a 6.8 0 10.2 0 Asset utilization ratio: Further,asset utilization ratios have been calculated. Asset utilization ratios depict about the efficiency level managed by the company to operate the daily activities of the business. In this report, credit turnover and stock turnover ratio of the company has been evaluated to measure the efficiency level of the company (Deegan, 2013). Creditor’s turnover days measure the total time period in which the credit amount would be paid to the creditors back by the company. In case of Bitmap plc, it has been found that gearing ratio of the company is 51.17 days and 29.09 days in the year of 2016 and 2017 respectively. It depicts that creditors turnover days have improved (appendix). It concludes that efficiency position of the company needs to be improved. Further, stock turnover days measure the total time period in which the stock would be ordered back by the company. In case of Bitmap plc, it has been found that gearing ratio of the company is 61.40 days and 62.42 days in the year of 2016 and 2017 respectively. It depicts that stock turnover days of company has improved (appendix). It concludes that efficiency position of the company has become better. Asset utilization ratio20172016 Creditors turnover days Accounts payable/1,1001,500 Cost of sales13,80010,700 Answer: (note the above needs to be x 365)# days29.0951.17
Accounting and Financial Management7 Stock Turnover (days) Average Inventory /2,3601,800 Cost of Sales# days13,80010,700 Answer:(note the above needs to be x 365)62.4261.40 Investor potential ratio: Further,investor potential ratios have been calculated. Investor potential ratios depict about the market position and stockholder’s level in the company to manage the investment and market position. In this report, earnings per share and price earnings ratio of the company has been evaluated to measure the efficiency level of the company (Du and Girma, 2009). Earnings per share measure the total earnings against the price per share of the company. In case of Bitmap plc, it has been found that EPS ratio of the company is $ 0.32 and $ 0.41 in the year of 2016 and 2017 respectively. It depicts better market position of the company (appendix). It concludes that investment level of the company has improved from previous year. Further, price earnings ratio measures the total share price against the EPS of the company. In case of Bitmap plc, it has been found that P/E ratio of the company is 3.11 and 2.46 in the year of 2016 and 2017 respectively. It depicts that P/E ratio of company has reduced (appendix). It concludes that market position of the company has reduced from previous year. Investment Potential ratios20172016 Earnings per share Net income /4,0603,220 Weighted average shares10,00010,000 Answer:%0.410.32 Price earnings ratio Share price /11 Earnings per share0.410.32 Answer: times p.a 2.4 6 3.1 1
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Accounting and Financial Management8 Working capital cycle: Working capital cycle is one of the important aspects for a business. It is calculated to measure the total time period which would take by the business to convert net working capital into the cash equivalents. In case of Bitmap plc, it has been recognized that inventory conversion cycle, receivable collection period and payable deferral period of the company is 62.42 days, 36.50 days and 29.09 days which defines that working capital cycle of the company is 69.83 days (appendix). It defines that the efficiency level of the company is quite better and company could manage its operations in lesser cash and cash equivalent resources. Conclusion and recommendation: On the basis of entire study over financial analysis and working capital cycle of the business, it has been recognized that business is required to improve profitability position in the market to improve the performance of the company. Further, liquidity level could be reduced by the business. Efficiency level, solvency position and investment potential performance of the company is quite better. Few changes into business can lead the business towards better performance.
Accounting and Financial Management9 Part B: Introduction: The report has been prepared for the directors of Toyland ltd in order to present them about the different investment option available in the market. In order to depict about the better option for the investment, capital budgeting techniques has been presented on the company. Further, the limitations, advantages and sources of capital of the company have also been prepared to measure the financial opportunities of the company. Investment appraisal technique: In order to measure the feasibility of two available options, various capital budgeting techniques have been applied on the company which are as follows: The payback period: Payback period is capital investment appraisal method which is used by the companies to measure the total time period in which the investment amount would be got back by the company. The calculations of payback period have been applied on both the investment appraisal techniques of the company to measure the better feasible option for the company. Below is the formula of payback period of the company: Pay Back Period= Initial investment/ cash inflow per period (Gali, 2015) Through applying the payback period formula over both the investment options of the company, it has been found that the investment amount would be got back by the company in 1.8 years if the investment would be done in Machinery A. and in case of machinery B, investment amount would be got back in 4.32 years (Appendix). It explains that Machinery A is more feasible due to the fact that amount would be got back by the company sooner in this case. The discounted payback period: Discounted payback period modified version of payback period. In addition to the payback period method, this technique considers the time factor. The calculations of discounted payback period have been applied on both the investment appraisal techniques of the company to measure the better feasible option for the company. Below is the formula of discounted payback period of the company:
Accounting and Financial Management10 Discounted pay Back Period= (Initial investment * time factor) / cash inflow per period (Fernandes, Lynch and Netemeyer, 2014) Through applying the payback period formula over both the investment options of the company, it has been found that the investment amount would be got back by the company in 2.14 years if the investment would be done in Machinery A. and in case of machinery B, investment amount would be got back in 5.18 years (Appendix). It explains that Machinery A is more feasible due to the fact that amount would be got back by the company sooner in this case. The accounting rate of return: ARR method is used by the companies to measure the total return which would be got through investing in the investment option available. The calculations of ARR have been applied on both the investment appraisal techniques of the company to measure the better feasible option for the company. Below is the formula of ARR of the company: ARR= AVERAGE ACCOUNTING PROFIT/ AVERAGE INVESTMENT(Borio, 2014) Through applying the ARR formula over both the investment options of the company, it has been found that the total average return from Machinery A and Machinery B would be 34.55% and 34.55% respectively (appendix). It explains that Machinery A and B both have same return. The net present value: Net present value is used by the companies to measure the total profit from the investment opportunity. The calculations of Net present value have been applied on both the investment appraisal techniques of the company to measure the better feasible option for the company. Below is the formula of Net present value of the company: NPV= Total Cash Inflow-Total cash outflow (Grinblatt and Titman, 2016) Through applying the NPV formula over both the investment options of the company, it has been found that the total net profit from Machinery A and Machinery B would be £ 302,380 and £161,380.00 respectively (appendix). It explains that Machinery A is more feasible due to the higher return. The internal rate of return:
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Accounting and Financial Management11 Internal rate of return is used by the companies to measure the minimum return from the investment. The calculations of IRR have been applied on both the investment appraisal techniques of the company to measure the better feasible option for the company. Below is the formula of IRR of the company: CF1 + CF2 + CF3 + ... − Initial Investment = 0 ( 1 + r )1( 1 + r )2( 1 + r )3 (Gambacorta and Signoretti, 2014) Through applying the IRR formula over both the investment options of the company, it has been found that the IRR from Machinery A and Machinery B would be 37.47% and 17.72% respectively (appendix). It explains that Machinery A is more feasible due to the higher return. On the basis of overall evaluation over capital budgeting process, it has been concluded that Machinery A is more feasible then Machinery B because of higher profits, lesser payback and discounted payback period and higher ARR and IRR. Key benefits and limitations of investment appraisal techniques: The payback period: Benefits and limitations of payback period are as follows: Benefits: Calculation of this method is quite simple and it is one of the most used methods. It helps the management to identify the total time in which investment amount would be got back so that better decision could be made. Payback period technique is one of those techniques which could be used by the small businesses to make decision and operate efficiently. Limitations: The main limitations of this technique are that it doesn’t consider the time value of money factor. This technique could not be applied for long term business. Management cannot rely much over this technique (Gitman and Zutter, 2012).
Accounting and Financial Management12 To conclude, this technique is not one of the better choices to be considered by the businesses in order to make decision about long term project. It can help the small business to make better decisions. The discounted payback period: Benefits and limitations of discounted payback period are as follows: Benefits: Unlike payback period technique, this technique considers the time value of money to identify the actual time in which the worth of investment amount could be got back. Process is quite simple and helps the management to make better decisions. It helps the management to decide about the actual time in which the worth of invested amount would be got back by the business. this makes it simple for the management to identify that investment must be done or not. Limitations: This is limited to identify the time period. Complexity level of calculation is quite higher. It cannot be used by the small and medium businesses because of higher intelligence required and complexity. It doesn’t take the concern over other cash flows after the total time period in which invested amount would be got back by the company. This is limited to time period only. To conclude, this method could be used for long term project by the large businesses. It would help them to get better result and make decision about investment. The accounting rate of return: Benefits and limitations accounting rate of return are as follows: Benefits: Because of lesser complexity and reliable result, it is one of the most used techniques. It helps the small as well as large companies to identify the average return from the investment and make better decision about the performance of the company (Horngren et al, 2015). Limitations: This technique ignores the worth of time value of money. It takes the consideration of average result which can’t be reliable.
Accounting and Financial Management13 To conclude, long term business decision cannot be made on the basis of this technique. It is only useful for the small businesses to identify the average return. The net present value: Benefits and limitations of net present value are as follows: Benefits: NPV is the most popular method. It takes the consideration over the time value of money. It is quite useful to identify the exact amount of profit from the investment. Calculations of this technique are less complex. Limitations: It relies on many assumptions such as the inflation rate would be same. Results are not reliable (Brigham and Ehrhardt, 2013). To conclude, in current available options of capital budgeting, it is one of the better options. It assists the businesses to make long term as well as short term investment options. The internal rate of return: Benefits and limitations of internal rate of return are as follows: Benefits: IRR is the most popular method. It takes the consideration over the time value of money and identifies the minimum return from the business. It is quite useful to identify that whether the investment opportunity would be able to offer higher return then the cost of capital of the business. Limitations: Calculations of IRR is quite complex. It cannot be used for small businesses and short term plan because of higher complexity (Bandy, 2013). To conclude, in current available options of capital budgeting, it is one of the better options. It assists the businesses to make long term as well as short term investment options. Suitable source of finance: If the Toyland limited invests into machinery A, then it is important for the business to raise $ 5,00,000 from the market. Then business has below two options to raise the funds for the investment.
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Accounting and Financial Management14 Equity share capital: Business could raise the funds through issuing the shares into the market. Risk involvement of this opportunity is lesser as well as it would not improve the market risk of the business. This investment opportunity wouldn’t impact much over the liability side of the business and business is also not required to repay the amount to the shareholders back. However, company has to sell the ownership in the market which would impact over the decision process of the company. Also, the cost of the company would be higher. Debt: Further, one other option for the Toyland limited is long term debt. Business could raise the funds through selling the debt into the market. Debt is the long term source to raise the funds. in this debt are issues in the market by the company in small parts to raise the money. Through this, company won’t have to sell the ownership and the amount would be got by the company. Cost of capital of the company would also be average (Bierman and Smidt, 2012). However, risk involvement of this source is higher as well it would affect the liability side of the business. Company has to pay the amount back to the debt holders. Loan: One other option for the Toyland limited is long term and short term loan. Business could raise the funds through taking the loan from financial institution. Through this, company won’t have to sell the ownership and the amount would be got by the company. Cost of capital of the company would also not be affected much. However, risk involvement of this source is higher as well it would affect the liability side of the business. Company has to pay the amount back to the financial institution. Hence, Toyland limited is suggested to raise the funds through proportion basis form equity and debt both. So that the ownership risk, cost of capital risk and solvency risk of the company could be managed. Part C: Budget definition and its link to business: Budgeting is one of the financial analysis methods. It basically forecast the future of an individual, organization, corporate and the government which defines that how much revenue would be generated by the company and how much would be the expenditure of the company. It basically depicts about the use of available and accessible resources in which a
Accounting and Financial Management15 way that main aim and goal of the business could be met. It is a tool which is used by the managers to plan and control over the scarce resources. It depicts about the company’s objectives and explains that how administration of the company intends to manage and use the assets of the company to meet the objectives. the budgeting process in an organization involves the proper planning of future and the happenings in the future due to the fact that main objective of a business is to gain profits. If it is known earlier by the company that how to use scare resources then it would help the business to get higher profits in the market (Bandy, 2013). It helps the management to prepare risk mitigate plan so that company could be able to meet any risk in the future. A management depicts about the operating plans of management for upcoming time period. It formalizes the plan of business in quantitative terms so that it could be understood by the involved stakeholders and helps the business to meet the strategic goals of the company. Budget offers the proper reliable information to the management so that the strategic plan of the company could be prepares through laying down the direction and goals of the company (Jaumotte, Lall and Papageorgiou, 2013). Budgeting process: Budgeting process is a way through which an organization builds the plan for future forecasting. A good process of budgeting involves those who are reliable and responsible for responsibly handle the budget and implement it in the business to meet the common goal of the business. It drives both the fiscal accountability and mission priorities of the company. The budgeting process in most of the large and big firms begins from 4 to 6 months fro, the starting of the financial year. Starting from the initial planning stage, company goes through a set of planning process to finally implement the budget in the company. Common process of budgeting includes the communication along the executive management, establishing of the mission, target and objectives, developing a detailed budget, revision of budget model, review through budget committee and approval (Airaudo, Nisticò and Zanna, 2015). In this, previous performance of the company is recognized and current market is studied to forecast the future performance of the company. Various budgets are prepared by the companies which start from the sales budget to goes through purchasing budget, production budget, operating budget, capital budget and cash budget to identify the total revenue and segregate the expenses accordingly. Overall,
Accounting and Financial Management16 budgeting process is one of the most used and helpful process to help the business to forecast the future and run the business smoothly.
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Accounting and Financial Management17 References: Airaudo, M., Nisticò, S. and Zanna, L.F., 2015. Learning, monetary policy, and asset prices.Journal of Money, Credit and Banking,47(7), pp.1273-1307. Bandy,G.2013.Financialmanagementandaccountinginthepublicsector.Oxon: Routledge. Bierman Jr, H. and Smidt, S., 2012.The capital budgeting decision: economic analysis of investment projects. Routledge. Borio, C., 2014. The financial cycle and macroeconomics: What have we learnt?.Journal of Banking & Finance,45, pp.182-198. Brigham,E.F.andEhrhardt,M.C.,2013.Financialmanagement:Theory&practice. Cengage Learning. Deegan, C., 2013.Financial accounting theory. McGraw-Hill Education Australia. Du, J. and Girma, S., 2009.Source of finance, growth and firm size: evidence from China(No. 2009.03). Research paper/UNU-WIDER. Fernandes, D., Lynch Jr, J.G. and Netemeyer, R.G., 2014. Financial literacy, financial education, and downstream financial behaviors.Management Science,60(8), pp.1861-1883. Galí, J., 2015.Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications. Princeton University Press. Gambacorta, L. and Signoretti, F.M., 2014. Should monetary policy lean against the wind?: An analysis based on a DSGE model with banking.Journal of Economic Dynamics and Control,43, pp.146-174. Gitman, L.J. and Zutter, C.J., 2012.Principles of managerial finance. Prentice Hall. Grinblatt, M. and Titman, S., 2016.Financial markets & corporate strategy. Prentice Hall. Horngren, C.T., Sundem, G.L., Stratton, W.O., Burgstahler, D. and Schatzberg, J., 2015.Introduction to management accounting. Upper Saddle River, New Jersey: Prentice Hall.
Accounting and Financial Management18 Jaumotte, F., Lall, S. and Papageorgiou, C., 2013. Rising income inequality: technology, or trade and financial globalization?.IMF Economic Review,61(2), pp.271-309. Kaplan, R.S. and Atkinson, A.A., 2015.Advanced management accounting. PHI Learning. Kiran, R. S., and Singh, V. K. 2014. How to make the financial analysis an easy task – A comparative analysis between the traditional and the modern approach?International Journal of Engineering Research and Applications,4(8), 61-66. Kurov, A. and Stan, R., 2016. Monetary Policy Uncertainty and the Market Reaction to Macroeconomic News: Evidence from the Taper Tantrum. Romney, M.B., Steinbart, P.J., Zhang, R. and Xu, G., 2016.Accounting information systems. Pearson Education.
Accounting and Financial Management19 Appendix: Ratios: Ratio Calculations20172016 (Amt in £000 ) (Amt in £000 ) Profitability Ratios:20172016 Return on Capital employed Operating profit /6,8005,100 Capital employed (total assets - current liabilities) 19,26 0 14,00 0 Answer:%35.31%36.43% Net profit margin % Net profit /4,0603,220 Sales Revenue%23,00018,000 Answer:17.65%17.89% Asset utilization ratio20172016 Creditors turnover days Accounts payable/1,1001,500 Cost of sales13,80010,700 Answer: (note the above needs to be x 365)# days29.0951.17 Stock Turnover (days) Average Inventory /2,3601,800 Cost of Sales# days13,80010,700 Answer:(note the above needs to be x 365)62.4261.40 Liquidity Ratios20172016 Current Ratio Current Assets /5,1604,150 Current liabilities 1,10 0 1,50 0 Answer:4.692.77 Quick ratio Current Assets - Inventory /2,8002,350 Current Liabilities 1,10 0 1,50 0 Answer:2.551.57
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Accounting and Financial Management20 Gearing Ratios20172016 Gearing ratio Total debt /3,5002,000 Total assets15,76012,000 Answer:%0.220.17 Interest Coverage Ratio EBIT /6,8005,100 Net Finance Costs(used net interest expense)1,000500 Answer: times p.a 6.8 0 10.2 0 Investment Potential ratios20172016 Earnings per share Net income /4,0603,220 Weighjted average shares10,00010,000 Answer:%0.410.32 Price earnings ratio Share price /11 Earnings per share0.410.32 Answer: times p.a 2.4 6 3.1 1 Working capital cycle: Calcualtion of working capital cycle Sales £ 23,000 £ 18,000 COGS £ 13,800 £ 10,700 Inventori es £ 2,360 £ 1,800 AR £ 2,300 £ 1,600 AP £ 1,100 £ 1,500 Days/ year365365
Accounting and Financial Management21 Cash conversion cycle (CCC)= Inventory conversion period+ Receivables collection period - Payables deferral period = Inventory/ COGSper day+ AR/Sales per day- AP/COGS per day =62.42+36.50-29.09 =69.83 Payback period: Calculation Of Payaback period Machine A YearsCash OutflowCash InflowCash flowsCF 0-£500,000.00-£500,000.00-£ 500,000.00 1£ 300,000.00£300,000.00-£ 200,000.00 2£ 250,000.00£250,000.00£50,000.00 3£ 200,000.00£200,000.00£250,000.00 4£ 150,000.00£150,000.00£400,000.00 5£50,000.00£50,000.00£450,000.00 6£20,000.00£20,000.00£470,000.00 6£50,000.00£ 50,000.00£520,000.00 Pay Back Period= Initial investment/ cash inflow per period1.80 Calculation Of Payaback period Machine B YearsCash OutflowCash InflowCash flowsCF 0-£ 500,000.00-£ 500,000.00-£ 500,000.00 1£20,000.00£20,000.00-£ 480,000.00 2£50,000.00£50,000.00-£ 430,000.00 3£ 150,000.00£ 150,000.00-£ 280,000.00 4£ 200,000.00£ 200,000.00-£80,000.00 5£ 250,000.00£ 250,000.00£170,000.00 6£ 300,000.00£ 300,000.00£470,000.00 6£ 50,000.00£ 50,000.00£520,000.00 Pay Back Period= Initial investment/ cash inflow per period4.32 Discounted payback period:
Accounting and Financial Management22 Calculation Of Discounted payback period Machine A YearsCash flowsP.V. factorCash flowsCF 0-£500,000.001.00-£500,000.00 -£ 500,000.00 1£300,000.000.91£272,727.27 -£ 227,272.73 2£250,000.000.83£206,611.57 -£ 20,661.16 3£200,000.000.75£150,262.96 £ 129,601.80 4£150,000.000.68£102,452.02 £ 232,053.82 5£50,000.000.62£31,046.07 £ 263,099.89 6£20,000.000.56£11,289.48 £ 274,389.37 6£50,000.000.56£28,223.70 £ 302,613.06 Discounted pay Back Period= (Initial investment * time factor) / cash inflow per period2.14 Calculation Of Discounted payback period Machine B YearsCash flowsP.V. factorCash flowsCF 0-£ 500,000.001.00-£ 500,000.00 -£ 500,000.00 1£20,000.000.91£18,181.82 -£ 481,818.18 2£50,000.000.83£41,322.31 -£ 440,495.87 3£ 150,000.000.75£ 112,697.22 -£ 327,798.65 4£ 200,000.000.68£ 136,602.69 -£ 191,195.96 5£ 250,000.000.62£ 155,230.33 -£ 35,965.63 6£ 300,000.000.56£ 169,342.18 £ 133,376.55 6£ 50,000.000.56£ 22,223.70 £ 161,660.25 Discounted pay Back Period= (Initial investment * time factor) / cash inflow per period5.18 NPV:
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