# Assignment on Business Finance (Solved)

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2BUSINESS FINANCEIntroduction Booli Electronics is the electronics manufacturer that carries on its business fromCarlton, Victoria, Australia. Owing to the technological changes the company wants to makenew model for their existing product SSHA. The focus of this report will be evaluating theacceptability of new SSHA project through various measures. These measures will includethe calculation of net present value, Profitability index, Payback period and internal rate ofreturn (McAuliffe 2015). Another objective of the report is to perform the sensitivity analysisof NPV with regard to changes in the selling prices and changes in the selling quantity.Answer 1 – Non-discounted payback periodPayback period is used to calculate the time in which the initial investment of theproject will be recovered. The main issue with payback period is that it does not consider thetime value of money which is an important aspect to consider (Leung et al. 2014). Further, itis concerned about the time in which the initial investment is recovered but ignores the cashflows after that Period.YearCash inflowCumulative cash flow0 \$ (47,025,000.00)1 \$ 9,158,160.00 \$ 9,158,160.00 2 \$ 34,307,097.60 \$ 43,465,257.60 3 \$ 25,842,344.45 \$ 69,307,602.05 4 \$ 16,194,120.97 \$ 85,501,723.02 5 \$ 23,547,757.33 \$ 109,049,480.35 Non-discounted payback period = 2 + (47,025,000 – 43.465,257.60) / (69,307,602.05 –43,465,257.60) = 2.14 years.
3BUSINESS FINANCEAnswer 2 – profitability indexIt recognizes the cost and benefit correlation of the project. The profitability index of newSSHA model is calculated as follows –PI = PV of future cash flows / Initial investment PI = \$ 77,573,881.43 / 47,025,000 = 1.65Answer 3 – internal rate of returnIRR is the point at which the cash inflows and cash outflows of the project are equal(Leyman and Vanhoucke 2016). As per the Excel calculation the IRR of new SSHA model is19.77%.Answer 4 – net present value It is the difference among the present value of cash inflows and cash outflows.Generally, the acceptability of the project is evaluated through calculating the NPV (Gallo2014). If the NPV is positive then the project is accepted and if the NPV is negative theproject is not accepted. The NPV of new SSHA model project is \$ 30,548,881.43 (Pasqual,Padilla and Jadotte 2013).Answer 5 – Sensitivity analysis for price change It is the technique of evaluating the impact of changes in the variables of the projectand the variables selected are those variables which can be expected most. While thesensitivity analysis is performed generally the unfavourable situations are taken intoconsideration. The variables taken into consideration are taken based on the most likelyexpected factors like changes in the selling price or the selling quantity in the given case(Brooks 2015). However, the impact of the changes of these variables shall be analysed to

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