Accounting and Finance Project Report: Analysis of AMP Limited

This report analyzes the financial performance of AMP Limited, an Australian financial services company. It includes a study of the company's capital structure, cost of capital, financial ratios, and material risks.

Running Head: Accounting and Finance
1
Project Report: Accounting and Finance

Accounting and Finance
2
Executive summary
The report has been prepared on various accounting and financial methods to measure
that whether the stock position and the financial performance of the company is better in the
industry or not. The report explains that few changes would help the business to improve the
overall performance and the stock level in the market.

Accounting and Finance
3
Contents
Part A:...............................................................................................................................4
Findings:...........................................................................................................................4
Decision process:..............................................................................................................4
Part B:...............................................................................................................................6
Introduction:.....................................................................................................................6
Debt and equity level:.......................................................................................................6
WACC:.............................................................................................................................6
CAPM:..............................................................................................................................7
Comparison of capital structure:.......................................................................................7
Financial ratios:................................................................................................................8
Changes in capital structure:.............................................................................................8
Material risk:.....................................................................................................................9
Conclusion:.....................................................................................................................10
References:.....................................................................................................................11
Appendix:.......................................................................................................................12

Accounting and Finance
4
Part A:
All the required calculations have been done in the attached spreadsheet and it has also
been added in the appendix area in the report file.
Findings:
According to the given case, Saturn Petcare Australia and New Zealand wants to
invest into a new project “Buddy” but before the investment, company wants to make sure
that whether it would be able to make enough funds from the business or would it be tough
for the business to manage the cost of the company on the basis of the available return.
Firstly, on the basis of normal estimated sales, the cash flow, NPV, payback and profitability
index of the company has been evaluated and it has been found that the project is quite
beneficial for the business as the NPV figures are positive and the profitability index and
payback are also favouring about the project.
Further, the scenario has been changed and the calculations have been done if the
sales would be improved by 5%. On the basis of the calculations, it has been measured that
the after tax cash flows of the business are $ 37,963,994. As well as, the NPV of the project
would be $2,478,046. Whereas, if the scenario has been changed and the calculations have
been done if the sales would be lowered by 5%. On the basis of the calculations, it has been
measured that the after tax cash flows of the business are $ 33,348,376. As well as, the NPV
of the project would be $ 5,93,865.
On the basis of evaluation on all the three scenarios, it has been found that the NPV of
the project would be positive and thus the investment must be done by Mr Quinlivan in the
Buddy project (Wilson & Gilligan, 2012). This project would also improve the stock price in
the market.
.
Decision process:
Further, a different case of the company has been discussed where the company is
planning to upgrade the manufacturing planets. Two replacement options has been seen by

Accounting and Finance
5
the business and the capital budgeting process has been applied on both the projects to
measure that which option is better for the company. On the basis of project A, $ 16,732 net
profit has been realized by the project whereas the calculations of project B briefs that the
total return from the project B would be $ 69,135. It explains that the project B is better
choice for the purpose of investment.

Accounting and Finance
6
Part B:
Introduction:
The report has been prepared to identify the accounting and financial performance of
AMP limited. Amp limited is an Australian company which offers the financial services in
the Australian and New Zealand market. The capital structure, cost of capital, various risks
and financial ratios of the company has been studied in the report to identify the financial
position and performance of AMP limited.
Debt and equity level:
Debt and equity level of Amp has been studied firstly and it has been found that the
equity holds the 87% and debt of the company holds the 13% share in the total capital of the
company.
(Annual report, 2017)

Accounting and Finance
7
WACC:
The cost of capital of the company has been studied in the part and it has been
recognized that the total cost of capital of the business is 10.41% which explains that the
return of the company must be higher than the 10.41% (Mullins, Walker & Boyd, 2012).
WACC calculations of AMP
(Amount in millions)
Price Cost Weight WACC
Debt 1,116 3.85% 0.13 0.52%
Equity 7,202 11.42% 0.87 9.89%
8,318 Kd 10.41%
(Annual report, 2017)
CAPM:
Cost of equity through CAPM model has been calculated further to measure that how
much return could be expected by the shareholders from the company. Below table represents
that the required rate of return of the company is 11.42% (Higgins, 2012). The company is
offering higher return against the risk i.e. 1.47.
Calculation of cost of equity
(CAPM)
RF 2.41%
RM 8.54%
Beta 1.470
Required rate of
return 11.42%
(Annual report, 2017)
Comparison of capital structure:
The capital structure of the company has been compared with an Australian bank
named by Australia and New Zealand bank to measure the industry’s capitals structure level.
The below graph explains that the capital structure of ANZ is optimal and AMP are required
to follow the same strategies in order to maintain the financial risk and reduce the level of
cost of capital of the business.

Accounting and Finance
8
(Annual report, 2017)
Financial ratios:
Financial ratios study has been performed further on the company and it has been
found that the return on sales, return on assets and return on equity of the business is 13.16%,
0.57% and 11.64%. Further, it has been found that the inventory turnover and asset turnover
level of the business is 30.12 days and 8.18 days which explains about better management of
the assets and efficiency level of the business (Madura, 2011).
In addition, the liquidity ratios explain that the current funds of the business are quite
higher which improves the cost level of the business. Lastly, the study has been performed on
the long term solvency ratios, and it has been found that the financial gearing position of the
company is quite higher.
Changes in capital structure:
The changes in the capital structure in the last years could be found as below:

Accounting and Finance
9
Material risk:
Material risk of the Amp limited has been discussed further in order to identify that in
which kind of risk the company is involved and how these risks are affecting the stock
position and the market capital of the business. Annual report (2017) of the company has
cleared the 7 risk which are mainly associated with the company and affect all the factors of
the company. The main material risk of the company is strategic risk, credit risk, market risk,
liquidity risk, operational risk, insurance risk and concentration risk. All of these risks are
related to the different scenarios. Though, all of these could affect the stock price level of the
business.
In the reports of Financial Services Royal Commission, it has been found that the
strategically risk and the liquidity risk of the business is higher. the reports of the commission
has made it clear that because of the few mistakes of the management, the risk level of the
company has been higher which have affected at the stock price of the company a lot (Home,
2018). The risk disclosed by the commission and the process explained that the reports were
adequate and because of that, the investors have lose their interest in the stocks of the
company. Though, the management has taken a further step and explained that the
management was at mistaken place and the same issues would not be repeated again by the
company.
The news (2018) and annual report (2017) explained that the company is associating
with all the risk mentioned in the annual report of the company. However, the level of the

Accounting and Finance
10
strategically risk and operational risk of the company is highest among all the risk. On the
basis of last year evaluation, it has been found that the level of strategically risk has been
improved in the business because of the ignorance of the management. However, after the
disclosure by commission, the management has taken a strong step and which has helped the
company to reduce the risk level and maintain better performance in the market so that the
stock level of the business could also be managed at better level (Annual report, 2017).
The last 3 year evaluation on all the material risk of the business explains that the
main risk of the business is operational risk and strategic risk because these factors are
changed by the company rapidly in order to assure that whether the position of the company
is competitive (Annual report, 2017). The evaluation express that the level of operational risk
is reducing and the level of strategically risk would be reduced by the business after the
current announcement by the management of the business.
Conclusion:
On the basis of the study on Amp limited, it has been recognised that the financial
gearing position of the company is not at all good. Few changes and the improvement in the
debt level must be done by the business in order to improve the financial gearing level of the
business and reduce the cost of the business. Further, it has been studied that the material risk
has been managed by the business.

Accounting and Finance
11
References:
Annual Report. (2017). AMP Limited. [online]. Retrieved from:
http://member.afraccess.com/media?id=CMN://2A1072055&filename=20180320/
AMP_01963508.pdf
Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill/Irwin.
Home. (2018). AMP Limited. [online]. Retrieved from: https://www.amp.com.au/
Madura, J. (2011). International financial management. Cengage Learning.
Mullins, J., Walker, O. C., & Boyd Jr, H. W. (2012). Financial management: A strategic
decision-making approach. McGraw-Hill Higher Education.
News. (2018). AMP Limited. [online]. Retrieved from:
https://www.amp.com.au/news/2018/may/AMP-and-the-Royal-Commission
Wilson, R. M., & Gilligan, C. (2012). Strategic financial management. Routledge.

Accounting and Finance
12
Appendix:
Buddy Project
Year
1
Yea
r 2
Year
3 Year 4
Yea
r 5
Yea
r 6
Yea
r 7
Yea
r 8
Year
9
Year
10
Initial
Outlay
$
20,0
00,0
00
Revenu
es
$
20,00
0,000
$
20,4
70,0
00
$
20,95
1,045
$
21,443
,395
$
22,4
63,0
76
$
21,9
47,3
14
$
22,4
63,0
76
$
23,5
31,2
46
$
22,9
90,9
59
$
23,53
1,246
Raw
Materia
l
$
7,000
,000
$
7,16
4,50
0
$
7,332,
866
$
7,505,
188
$
7,86
2,07
7
$
7,68
1,56
0
$
7,86
2,07
7
$
8,23
5,93
6
$
8,04
6,83
5
$
8,235
,936
Variabl
e
convers
ion cost
$
5,600
,000
$
5,60
0,00
0
$
5,600,
000
$
5,600,
000
$
5,60
0,00
0
$
5,60
0,00
0
$
5,60
0,00
0
$
5,60
0,00
0
$
5,60
0,00
0
$
5,600
,000
Fixed
convers
ion cost
$
1,400
,000
$
1,56
4,50
0
$
1,732,
866
$
1,905,
188
$
2,26
2,07
7
$
2,08
1,56
0
$
2,26
2,07
7
$
2,63
5,93
6
$
2,44
6,83
5
$
2,635
,936
EBDT
$
20,0
00,0
00
$
6,000
,000
$
6,14
1,00
0
$
6,285,
314
$
6,433,
018
$
6,73
8,92
3
$
6,58
4,19
4
$
6,73
8,92
3
$
7,05
9,37
4
$
6,89
7,28
8
$
7,059
,374
Less:
Depreci
ation
$
1,500
,000
$
1,50
0,00
0
$
1,500,
000
$
1,500,
000
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,500
,000
EBT
$
20,0
00,0
00
$
4,500
,000
$
4,64
1,00
0
$
4,785,
314
$
4,933,
018
$
5,23
8,92
3
$
5,08
4,19
4
$
5,23
8,92
3
$
5,55
9,37
4
$
5,39
7,28
8
$
5,559
,374
Less:
Taxes
$
1,350
,000
$
1,39
2,30
0
$
1,435,
594
$
1,479,
906
$
1,57
1,67
7
$
1,52
5,25
8
$
1,57
1,67
7
$
1,66
7,81
2
$
1,61
9,18
6
$
1,667
,812
EAT
$
20,0
00,0
00
$
3,150
,000
$
3,24
8,70
0
$
3,349,
719
$
3,453,
113
$
3,66
7,24
6
$
3,55
8,93
6
$
3,66
7,24
6
$
3,89
1,56
2
$
3,77
8,10
1
$
3,891
,562
ADD:
Depreci
$
-
$
1,500
$
1,50
$
1,500,
$
1,500,
$
1,50
$
1,50
$
1,50
$
1,50
$
1,50
$
1,500

Accounting and Finance
13
aation ,000
0,00
0 000 000
0,00
0
0,00
0
0,00
0
0,00
0
0,00
0 ,000
ADD:
Scrap
value
$
5,000
,000
cash
flow
$
20,0
00,0
00
$
4,650
,000
$
4,74
8,70
0
$
4,849,
719
$
4,953,
113
$
5,16
7,24
6
$
5,05
8,93
6
$
5,16
7,24
6
$
5,39
1,56
2
$
5,27
8,10
1
$
10,39
1,562
Total
cash
flow
$ -
20,0
00,0
00
$
4,650
,000
$
4,74
8,70
0
$
4,849,
719
$
4,953,
113
$
5,16
7,24
6
$
5,05
8,93
6
$
5,16
7,24
6
$
5,39
1,56
2
$
5,27
8,10
1
$
10,39
1,562
Calculation of Net Present Value Calculation Of Payaback period
Years
Cas
h
Outf
low
Cash
Inflo
w
Fact
ors
Cash
Inflo
w PV
Cash
Outflo
w PV
0
$ -
20,0
00,0
00
1.00
0
$
-
$ -
20,000
,000
Yea
rs
Cas
h
Outf
low
Cas
h
Infl
ow
Cash
flow
s CF
1
$
4,650
,000
0.83
3
$
3,875,
000 0
-
200
000
00
$ -
20,0
00,0
00
$ -
20,00
0,000
2
$
4,748
,700
0.69
4
$
3,297,
708 1
465
000
0
$
4,65
0,00
0
$ -
15,35
0,000
3
$
4,849
,719
0.57
9
$
2,806,
551 2
474
870
0
$
4,74
8,70
0
$ -
10,60
1,300
4
$
4,953
,113
0.48
2
$
2,388,
654 3
484
971
9.45
$
4,84
9,71
9
$
-
5,751
,581
5
$
5,167
,246
0.40
2
$
2,076,
600 4
495
311
2.85
7
$
4,95
3,11
3
$
-
798,4
68
6
$
5,058
,936
0.33
5
$
1,694,
227 5
516
724
6.00
5
$
5,16
7,24
6
$
4,368
,778

Accounting and Finance
14
7
$
5,167
,246
0.27
9
$
1,442,
084 6
505
893
6.00
9
$
5,05
8,93
6
$
9,427
,714
8
$
5,391
,562
0.23
3
$
1,253,
905 7
516
724
6.00
5
$
5,16
7,24
6
$
14,59
4,960
9
$
5,278
,101
0.19
4
$
1,022,
931 8
539
156
1.66
7
$
5,39
1,56
2
$
19,98
6,522
10
$
10,39
1,562
0.16
2
$
1,678,
295 9
527
810
1.28
7
$
5,27
8,10
1
$
25,26
4,623
Total
$
21,53
5,956
$ -
20,000
,000 10
103
915
61.6
7
$
10,3
91,5
62
$
35,65
6,185
NPV= Total Cash Inflow PV
-Total cash outflow PV
$
1,535,
956 4.15
Calculation of profitability index
Years
Cas
h
Outf
low
Cash
Inflo
w
PV
fact
or P.V.
0
-
200
000
00 -
1.00
0
-
20000
000
1
4650
000
0.83
3
38750
00
2
4748
700
0.69
4
32977
08.33
3
3
4849
719.4
5
0.57
9
28065
50.60
8
4
4953
112.8
57
0.48
2
23886
53.96
3
5 5167
246.0
0.40
2
20766
00.27

Accounting and Finance
15
05 9
6
5058
936.0
09
0.33
5
16942
27.43
4
7
5167
246.0
05
0.27
9
14420
83.52
7
8
5391
561.6
67
0.23
3
12539
04.92
6
9
5278
101.2
87
0.19
4
10229
31.39
10
1039
1561.
67
0.16
2
16782
95.22
4
70914
42.50
PI= Total Cash Inflow/Initial
Investment 0.355
5% higher
than
Estimated
sales
Buddy Project
Year
1
Yea
r 2
Year
3 Year 4
Yea
r 5
Yea
r 6
Yea
r 7
Yea
r 8
Year
9
Year
10
Initial
Outlay
$
20,0
00,0
00
Revenu
es
$
21,00
0,000
$
21,4
93,5
00
$
21,99
8,597
$
22,515
,564
$
23,5
86,2
30
$
23,0
44,6
80
$
23,5
86,2
30
$
24,7
07,8
08
$
24,1
40,5
06
$
24,70
7,808
Raw
Materia
l
$
7,350
,000
$
7,52
2,72
5
$
7,699,
509
$
7,880,
447
$
8,25
5,18
1
$
8,06
5,63
8
$
8,25
5,18
1
$
8,64
7,73
3
$
8,44
9,17
7
$
8,647
,733
Variabl
e
convers
ion cost
$
5,600
,000
$
5,60
0,00
0
$
5,600,
000
$
5,600,
000
$
5,60
0,00
0
$
5,60
0,00
0
$
5,60
0,00
0
$
5,60
0,00
0
$
5,60
0,00
0
$
5,600
,000
Fixed $ $ $ $ $ $ $ $ $ $

Accounting and Finance
16
convers
ion cost
1,750
,000
1,92
2,72
5
2,099,
509
2,280,
447
2,65
5,18
1
2,46
5,63
8
2,65
5,18
1
3,04
7,73
3
2,84
9,17
7
3,047
,733
EBDT
$
20,0
00,0
00
$
6,300
,000
$
6,44
8,05
0
$
6,599,
579
$
6,754,
669
$
7,07
5,86
9
$
6,91
3,40
4
$
7,07
5,86
9
$
7,41
2,34
3
$
7,24
2,15
2
$
7,412
,343
Less:
Depreci
ation
$
1,500
,000
$
1,50
0,00
0
$
1,500,
000
$
1,500,
000
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,500
,000
EBT
$
20,0
00,0
00
$
4,800
,000
$
4,94
8,05
0
$
5,099,
579
$
5,254,
669
$
5,57
5,86
9
$
5,41
3,40
4
$
5,57
5,86
9
$
5,91
2,34
3
$
5,74
2,15
2
$
5,912
,343
Less:
Taxes
$
1,440
,000
$
1,48
4,41
5
$
1,529,
874
$
1,576,
401
$
1,67
2,76
1
$
1,62
4,02
1
$
1,67
2,76
1
$
1,77
3,70
3
$
1,72
2,64
6
$
1,773
,703
EAT
$
20,0
00,0
00
$
3,360
,000
$
3,46
3,63
5
$
3,569,
705
$
3,678,
268
$
3,90
3,10
8
$
3,78
9,38
3
$
3,90
3,10
8
$
4,13
8,64
0
$
4,01
9,50
6
$
4,138
,640
ADD:
Depreci
aation
$
-
$
1,500
,000
$
1,50
0,00
0
$
1,500,
000
$
1,500,
000
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,500
,000
ADD:
Scrap
value
$
5,000
,000
cash
flow
$
20,0
00,0
00
$
4,860
,000
$
4,96
3,63
5
$
5,069,
705
$
5,178,
268
$
5,40
3,10
8
$
5,28
9,38
3
$
5,40
3,10
8
$
5,63
8,64
0
$
5,51
9,50
6
$
10,63
8,640
Total
cash
flow
$ -
20,0
00,0
00
$
4,860
,000
$
4,96
3,63
5
$
5,069,
705
$
5,178,
268
$
5,40
3,10
8
$
5,28
9,38
3
$
5,40
3,10
8
$
5,63
8,64
0
$
5,51
9,50
6
$
10,63
8,640
$
14,70
0,000
$
15,0
45,4
50
$
15,39
9,018
$
15,760
,895
$
16,5
10,3
61
$
16,1
31,2
76
$
16,5
10,3
61
$
17,2
95,4
66
$
16,8
98,3
55
$
17,29
5,466
$
7,350
,000
$
7,52
2,72
5
$
7,699,
509
$
7,880,
447
$
8,25
5,18
1
$
8,06
5,63
8
$
8,25
5,18
1
$
8,64
7,73
3
$
8,44
9,17
7
$
8,647
,733

Accounting and Finance
17
Calculation of Net Present Value
Years
Cas
h
Outf
low
Cash
Inflo
w
Fact
ors
P.V.
ofCas
h
Inflo
w
P.V. of
Cash
Outflo
w
0
$ -
20,0
00,0
00
1.00
0
$
-
$ -
20,000
,000
1
$
4,860
,000
0.83
3
$
4,050,
000
2
$
4,963
,635
0.69
4
$
3,446,
969
3
$
5,069
,705
0.57
9
$
2,933,
857
4
$
5,178
,268
0.48
2
$
2,497,
236
5
$
5,403
,108
0.40
2
$
2,171,
388
6
$
5,289
,383
0.33
5
$
1,771,
404
7
$
5,403
,108
0.27
9
$
1,507,
908
8
$
5,638
,640
0.23
3
$
1,311,
367
9
$
5,519
,506
0.19
4
$
1,069,
717
10
$
10,63
8,640
0.16
2
$
1,718,
200
Total
$
22,47
8,046
$ -
20,000
,000
NPV= Total Cash Inflow PV
-Total cash outflow PV
$
2,478,
046

Accounting and Finance
18
5% lower
than
Estimated
sales
Buddy Project
Year
1
Yea
r 2
Year
3 Year 4
Yea
r 5
Yea
r 6
Yea
r 7
Yea
r 8
Year
9
Year
10
Initial
Outlay
$
20,0
00,0
00
Revenu
es
$
19,00
0,000
$
19,4
46,5
00
$
19,90
3,493
$
20,371
,225
$
21,3
39,9
22
$
20,8
49,9
49
$
21,3
39,9
22
$
22,3
54,6
84
$
21,8
41,4
11
$
22,35
4,684
Raw
Materia
l
$
6,650
,000
$
6,80
6,27
5
$
6,966,
222
$
7,129,
929
$
7,46
8,97
3
$
7,29
7,48
2
$
7,46
8,97
3
$
7,82
4,13
9
$
7,64
4,49
4
$
7,824
,139
Variabl
e
convers
ion cost
$
5,600
,000
$
5,60
0,00
0
$
5,600,
000
$
5,600,
000
$
5,60
0,00
0
$
5,60
0,00
0
$
5,60
0,00
0
$
5,60
0,00
0
$
5,60
0,00
0
$
5,600
,000
Fixed
convers
ion cost
$
1,050
,000
$
1,20
6,27
5
$
1,366,
222
$
1,529,
929
$
1,86
8,97
3
$
1,69
7,48
2
$
1,86
8,97
3
$
2,22
4,13
9
$
2,04
4,49
4
$
2,224
,139
EBDT
$
20,0
00,0
00
$
5,700
,000
$
5,83
3,95
0
$
5,971,
048
$
6,111,
367
$
6,40
1,97
7
$
6,25
4,98
5
$
6,40
1,97
7
$
6,70
6,40
5
$
6,55
2,42
3
$
6,706
,405
Less:
Depreci
ation
$
1,500
,000
$
1,50
0,00
0
$
1,500,
000
$
1,500,
000
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,500
,000
EBT
$
20,0
00,0
00
$
4,200
,000
$
4,33
3,95
0
$
4,471,
048
$
4,611,
367
$
4,90
1,97
7
$
4,75
4,98
5
$
4,90
1,97
7
$
5,20
6,40
5
$
5,05
2,42
3
$
5,206
,405
Less:
Taxes
$
1,260
,000
$
1,30
0,18
5
$
1,341,
314
$
1,383,
410
$
1,47
0,59
3
$
1,42
6,49
5
$
1,47
0,59
3
$
1,56
1,92
2
$
1,51
5,72
7
$
1,561
,922
EAT
$
20,0
00,0
00
$
2,940
,000
$
3,03
3,76
5
$
3,129,
733
$
3,227,
957
$
3,43
1,38
4
$
3,32
8,48
9
$
3,43
1,38
4
$
3,64
4,48
4
$
3,53
6,69
6
$
3,644
,484

Accounting and Finance
19
ADD:
Depreci
aation
$
-
$
1,500
,000
$
1,50
0,00
0
$
1,500,
000
$
1,500,
000
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,50
0,00
0
$
1,500
,000
ADD:
Scrap
value
$
5,000
,000
cash
flow
$
20,0
00,0
00
$
4,440
,000
$
4,53
3,76
5
$
4,629,
733
$
4,727,
957
$
4,93
1,38
4
$
4,82
8,48
9
$
4,93
1,38
4
$
5,14
4,48
4
$
5,03
6,69
6
$
10,14
4,484
Total
cash
flow
$ -
20,0
00,0
00
$
4,440
,000
$
4,53
3,76
5
$
4,629,
733
$
4,727,
957
$
4,93
1,38
4
$
4,82
8,48
9
$
4,93
1,38
4
$
5,14
4,48
4
$
5,03
6,69
6
$
10,14
4,484
Calculation of Net Present Value
Years
Cas
h
Outf
low
Cash
Inflo
w
Fact
ors
P.V.
ofCas
h
Inflo
w
P.V. of
Cash
Outflo
w
0
$ -
20,0
00,0
00
1.00
0
$
-
$ -
20,000
,000
1
$
4,440
,000
0.83
3
$
3,700,
000
2
$
4,533
,765
0.69
4
$
3,148,
448
3
$
4,629
,733
0.57
9
$
2,679,
244
4
$
4,727
,957
0.48
2
$
2,280,
072
5
$
4,931
,384
0.40
2
$
1,981,
813
6
$
4,828
,489
0.33
5
$
1,617,
051
7 $ 0.27 $

Accounting and Finance
20
4,931
,384 9
1,376,
259
8
$
5,144
,484
0.23
3
$
1,196,
442
9
$
5,036
,696
0.19
4
$
976,1
45
10
$
10,14
4,484
0.16
2
$
1,638,
391
Total
$
20,59
3,865
$ -
20,000
,000
NPV= Total Cash Inflow PV
-Total cash outflow PV
$
593,8
65
Calculation of Net Present Value (option A)
Year
s Cash Outflow Cash Inflow Factors
P.V. ofCash
Inflow
P.V. of Cash
Outflow
0 $ -475,000 1.000 $ - $ -475,000
1 $ 100,000 0.943
$
94,340
2 $ 100,000 0.890
$
89,000
3 $ 100,000 0.840
$
83,962
4 $ 100,000 0.792
$
79,209
5 $ 100,000 0.747
$
74,726
6 $ 100,000 0.705
$
70,496
Total
$
491,732 $ -475,000
NPV= Total Cash Inflow-Total cash outflow
$
16,732
Calculation of Net Present Value (option B)
Year
s Cash Outflow Cash Inflow Factors
P.V. ofCash
Inflow
P.V. of Cash
Outflow
0 $ -475,000 1.000 $ - $ -475,000

Accounting and Finance
21
1 $ 80,000 0.943
$
75,472
2 $ 80,000 0.890
$
71,200
3 $ 80,000 0.840
$
67,170
4 $ 80,000 0.792
$
63,367
5 $ 80,000 0.747
$
59,781
6 $ 80,000 0.705
$
56,397
7 $ 80,000 0.665
$
53,205
8 $ 80,000 0.627
$
50,193
9 $ 80,000 0.592
$
47,352
Total
$
544,135 $ -475,000
NPV= Total Cash Inflow PV -Total cash
outflow PV
$
69,135
RATIO FORMULA
Also
referred to
as…
Profitability Ratios
Return on sales
(ROS) = Net income / Revenue 13.16%
Return on assets
(ROA) = Net income / Total assets 0.57%
Return on equity
(ROE)
= Net income / Stockholders'
equity 11.64%
Asset Management Efficiency Ratios
Inventory turnover = Cost of goods sold / Inventory 30.129744
Asset turnover = Revenue / Total assets 8.1881061
Liquidity Ratios
Current ratio
= Current assets / Current
liabilities 3.1585071
Long-term Solvency ratios
Debt ratio = Total liabilities / Total assets 0.7833339

Accounting and Finance
22
Financial leverage = Total assets / Total equity 20.332967