Financial Management Assignment 2022

Module Name: Financial Management
1

Table of Contents
Portfolio 1: Champion Co................................................................................................................3
Task (i).........................................................................................................................................3
Annual after-tax cash flow.......................................................................................................3
Net Present value.....................................................................................................................5
Comments................................................................................................................................5
Task (ii)........................................................................................................................................6
Task (iii).......................................................................................................................................6
Portfolio 2: Claudia Co....................................................................................................................6
Task (a)........................................................................................................................................6
Task (b)........................................................................................................................................7
Task (c)........................................................................................................................................9
Task (d)......................................................................................................................................10
Task (e)......................................................................................................................................10
Portfolio 3: Alliance Co.................................................................................................................11
Task (i).......................................................................................................................................11
Task (b):.....................................................................................................................................11
Task (c)......................................................................................................................................11
References......................................................................................................................................13
2

Portfolio 1: Champion Co.
Task (i)
Annual after-tax cash flow
Champion Co.
Annual forecasted cash flow
For three years
Description Year 0
£’000
Year1
£’000
Year 2
£’000
Year 3
£’000
Revenue 2,400 2,400 2,400
Variable costs (1,500) (1,500) (1,500)
Fixed costs (355) (355) (355)
Rent-paid in advance (80) (80) (80)
Net operating cash flow (80) 465 465 545
Tax (30%) 24 (139.5) (139.5) (163.5)
Initial investment& Scrap value
of machine
(1,200)
Capital allowance 90 67.5 22.5
Working capital (350) (60) (50) 460
Total cash flows (1,606) 355.5 343 1,464
Discount factor 11% 1 0.901 0.812 0.731
Present value (1,606) 320.306 278.516 1,070.184
NPV 63.006
3

Workings
Revenue= 60,000unit x £40 each = 2,400
Variable cost= 60,000 units x £25 each= 1,500
W1: Relevant fixed costs
Fixed costs £’000
Total annual fixed costs 715
Bank interest (86)
Head office overheads (74)
Depreciation (straight method) (200)
Relevant fixed costs 355
Depreciation: (1,200-600)/3=200
W2: Capital allowance
Capital allowance £’000
Tax savings
(30%)
Year 1:
1,200 x 25%=300 900 90
Year 2:
900 x 25=225 675 67.5
Year 3:
600-675= (75) (75) 22.5
Scrap value 600
W3: Fixed costs
Fixed costs £000
Fixed costs of the project 715
Bank interest (86)
Head office overheads (74)
Depreciation (200)
Relevant fixed costs 355
4