Business Decision Making: Capital Budgeting Techniques and Financial Performance Analysis

BUSINESS DECISION
MAKING

TABLE OF CONTENTS
TASK 1.......................................................................................................................................................3
QUESTION 1 a)......................................................................................................................................3
QUESTION1 b).......................................................................................................................................5
QUESTION 1 c)......................................................................................................................................8
TASK 2.......................................................................................................................................................9
QUESTION 2 a)......................................................................................................................................9
QUESTION 2.b)......................................................................................................................................9
QUESTION 3 c)....................................................................................................................................10
REFERENCES..........................................................................................................................................12

TASK 1
QUESTION 1 a)
i. Payback Period
Year
Cash
inflows
of
Dysn:
Model
1
Cumulative Cash
inflow
Cash
inflows
of
Texla:
Model
2
Cumulative Cash
inflow
1
120,00
0 120,000 95000 95000
2 90,000 210,000 125000 220000
3 75,000 285,000 115000 335000
4 80,000 365,000 125000 460000
pay back
period
2+(250,000-210000)/
75000
3+(400000-335000)/
125000
2+0.53 3+0.52
2.53 3.52
From the above table it can be identified that 2.53 and 3.52 years are the pay back period of
model of machine respectively.
ii. Accounting Rate of Return:
Particulars Dysn:
Model
Texla:
Model

1 2
Initial
Investment
250,00
0 400000
Scrap value 10,000 90000
Depreciation 247500 377500
Average
investment 125000 200000
Average EBIT 373750 588750
ARR 33% 34%
The outcome derived from the above computation is 33 and 34% for both respective models.
ARR of Texla is higher than the another model of machine.
iii. Net Present Value:
Year
Cash
inflows of
Dysn:
Model 1
cost of
capital of
12%.
Discounte
d cash
flows
Cash
inflows
of
Texla:
Model
2
cost
of
capita
l of
12%.
Discounte
d cash
flows
1 120,000 0.8929 107142.9 95000
0.892
9 84825.5
2 90,000 0.7972 71747.45 125000
0.797
2 99650
3 75,000 0.7118 53383.52 115000 0.711 81857