Business Finance: Cash Conversion Cycle, NPV, IRR, Rights Issue

Business
Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
A. The length of cash conversion cycle and its significance to the company:............................1
B. should it accept the offer:........................................................................................................2
QUESTION 2...................................................................................................................................2
A. Net present value:....................................................................................................................2
B. Internal rate of return:.............................................................................................................3
C. Increase in cost of capital in year 5:........................................................................................4
QUESTION 3 ..................................................................................................................................5
A. The theoretical ex- rights price per share:...............................................................................5
B. The net cash raised:.................................................................................................................6
C. The value of the rights:............................................................................................................6
D. Advantage and disadvantage of right issue:............................................................................7
QUESTION 4...................................................................................................................................7
A. The company's weighted average cost of capital using market weightings:..........................7
B. Discussion of integration a sensible level of gearing into their capital structure, can
minimise their weighted average cost of capital:.........................................................................8
CONCLUSION................................................................................................................................8
REFRENCES.................................................................................................................................10

INTRODUCTION
Business finance is concern with external financial resource that a firm realise for fulfil
its financial or monetary needs. It tells firm about the fund and money credit requirement to run
business operations. It helps firm in managing and raising fund by planning, organising, analysis
and controlling. This report covers such task that are length of cash conversion cycle and
evaluation of it, some methods of investment techniques that are net present value, internal rate
of return. Apart from this it also covers task such as valuation of different share, weighted
average cost of capital and its discussion and dividend or dividend return calculation (Steffen,
2018).
QUESTION 1
A. The length of cash conversion cycle and its significance to the company:
Cash conversion cycle refers the time in which firm convert its investment into inventory
and resources into cash by sales. It helps firm to know about the actual cash flow from growth. It
is method between cash outflow and cash inflow. It is important for the company to determine
the efficiency of the firm that it can convert its investment into cash and sales into cash. The cash
conversion period for the firm is approx 140 days. It is important in company to assessing firm's
operations and understand of risk (Motta, V., 2020).
1. Cash conversion cycle
CCC= DIO + DSO – DPO
Days inventory outstanding
DIO= ( Average inventory / cost of goods sold) * 365
average inventory= 1634 + 2018 = 3652
cost of goods sold = 8860
=( 3652 / 8860 ) * 365
= 138.50
Days sales 0oustanding
DSO = (account receivables / net credit sales ) * 365

account receivables = 1538
net credit sales = 12000
DSO = 1538 / 12000 * 365
= 46.78
Days payable outstanding
DPO = ending accounts payables / ( cost of goods sold / 365 )