Finance Assignment Project Report
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Added on 2020-05-16
Finance Assignment Project Report
Added on 2020-05-16
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Running Head: Finance1Project Report: Finance
Finance2ContentsIntroduction.......................................................................................................................3Case Overview..................................................................................................................3Part A................................................................................................................................4Initial investment..........................................................................................................4Operating cash inflows.................................................................................................5Terminal cash flow.......................................................................................................7Part B................................................................................................................................8Relevant cash flow stream:...........................................................................................8Part C..............................................................................................................................11Payback period............................................................................................................11Net present value........................................................................................................12Internal rate of return..................................................................................................12Past D..............................................................................................................................15Draw the graph...........................................................................................................15Part E..............................................................................................................................16Conflicting ranking of projects...................................................................................16Recommendation........................................................................................................16Part F...............................................................................................................................17Recommendation........................................................................................................17References.......................................................................................................................18
Finance3Introduction:In the given case, a company, CQU printers is looking to make few changes into its operations and the printers to enhance the production and to reduce the cost. This case explains that the few changes have taken place in the market and for competing with these factors; it is required for the company to replace the old printers with new one. New manager of the company has suggested to the management of the company to evaluate the old printers and two new printers and evaluate that which new printer would be best for the company and which printer would offer high return and high internal rate of return to the company. For evaluating both the printers and their outcome in the company, capital budgeting techniques have been evaluated and it has been found that how much return could be got by the company. Case Overview:Case explains that the company is required to produce 50,000 units annually. Old printers must be replaced by the company by new printers. The sales value of the old printer is $ 1,50,000 which express that if the company would sell the old printer right now than the revenue of the company would be $ 4,20,000 whereas if the company would hold the old printer than after 2 years it would be sold in $b 1,16,000. Further, the new printers have been explained by the company and it has been found that the installed cost of printer A is $ 8,70,000 and printer B is $ 6,60,000. Further, it explains that the Sales value of the printers after 5 years would be $ 4,00,000 and $ 3,30,000 and the book value after 5 years would be $ 43,500 and $ 33,000. Further, it has been explained that the life of both the projects would be 5 years. More, it has been found that the cost of capital of the company is 30% and the tax rate of the country is 14%. Further, a table has been given about the profits of old printer, new printer A and new printer B which is as follows:Profit before depreciation and taxes for CQU printers Year Old printer Printer A Printer B 1 $ 1,20,000 $ 2,50,000 $ 2,10,000 2 $ 1,20,000 $ 2,70,000 $ 2,10,000 3 $ 1,20,000 $ 3,00,000 $ 2,10,000 4 $ 1,20,000 $ 3,30,000 $ 2,10,000 5 $ 1,20,000 $ 3,70,000 $ 2,10,000
Finance4Part A:It is required for the company to evaluate the installed cost, total cash flows and terminal cash flows of the project before investing into the project. It assists the company to evaluate that which project is best and how much cash inflow would be got by the company from a particular project after a particular time period (Chittenden & Derregia, 2015). Following is the study of Initial investment, cash flows and terminal cash flows after 5 years of both the projects:Initial investment:Initial investment is the total amount which has been invested by an organization to acquire machinery. In the given case there are two machineries and their calculation of initial investment is as follows: Calculation of initial investment New Mach (A)New Mach (B)Installed cost $ 8,70,000 $ 6,60,000 Less: Selling Price $ 4,20,000 $ 4,20,000 Initial Investment $ 4,50,000 $ 2,40,000 It explains that the initial investment of the Printer A would be $ 4,50,000 and for Printer B, company would have to invest $ 2,40,000. It explains that the initial investment of printer B is lesser than the other project proposal (Lorenz, 2015). Following is the working note:Working Note:Calculation of current net profitInstalled cost $ 4,00,000 Less: Depreciation of 3 years $ 1,50,000 Value after 3 years $ 2,50,000 Current Selling value $ 4,20,000 Profit $ 1,70,000
Finance5Net profit $ 1,70,000 Operating cash inflows:Total operating cash inflow is the total amount which has been received by an organization after investing into a particular project through its operating activities (Renz, 2016). In the given case there are two machineries and their calculation of operating cash flow is as follows:Differential Cash Flows from OperationsInitial YEAR1YEAR 2YEAR 3YEAR 4YEAR5DIFFERENTIATED DEPRECIATION$ -1,15,300 #######$-1,15,300$ -1,15,300 -1,15,300Cash inflows from new machinery$ 2,50,000 $2,70,000$ 3,00,000$ 3,30,000 3,70,000Cash inflows from old machinery$ -1,20,000 #######$-1,20,000$ -1,20,000 -1,20,000DIFFERENTIATED Earnings Before Interest&Taxes $ 14,700 $ 34,700$ 64,700$ 94,700 1,34,700TAXES$ -4,410 $ -10,410$ -19,410 $ -28,410 -40,410DIFFERENTIATED EBIAT $ 10,290 $ 24,290$ 45,290 $ 66,290 94,290DIFF Operational CF$ 1,25,590 $1,39,590$ 1,60,590 $ 1,81,5902,09,590Changes in operatingassets and liabilitiesChanges in cash$-25,4
Finance600 Changes in Accounts Receivable$ -1,20,000 Inventories$20,000 Changes in Accounts Payable$35,000 $ -90,400 $1,25,590 $1,39,590 $1,60,590 $1,81,590 $2,09,590 Total Operational Cash flows7,26,550The above table explains that the operating cash inflows of the company would be $ 7,26,550 in case of printer A. It explains that the good cash inflows would occur in case of printer A. Differential Cash Flows from OperationsInitial YEAR1YEAR2YEAR 3YEAR 4YEAR5DIFFERENTIATED DEPRECIATION$ -75,400 $ -75,400$ -75,400 $ -75,400 $ -75,400 Cash inflows from new machinery$ 2,10,000 $2,10,000$ 2,10,000$ 2,10,000 $ 2,10,000 Cash inflows from old machinery$ -1,20,000 $ -1,20,000 #######$-1,20,000$ -1,20,000 $ -1,20,000 DIFFERENTIATED Earnings Before Interest &Taxes $ 14,600 $ 14,600$ 14,600 $ 14,600 $ 14,600 TAXES$ -4,380$ -4,380 $ -4,380 $ -4,380 $ -4,380DIFFERENTIATED $ $ $ $ $
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