Business Finance: Capital Budgeting and Ratio Analysis

BUSINESS FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................5
Question 1...................................................................................................................................5
a) Calculation of Annual relevant cash flows and Net Present Value........................................5
b) Calculation of Internal Rate of Return....................................................................................7
c) Analysis of financial viability.................................................................................................9
d) Comparison of different types of methods of capital structure..............................................9
Question 2.................................................................................................................................10
a) Calculation cash operating cycle...........................................................................................10
b) Calculation of Liquidity ratio...............................................................................................10
c) Risk and cost reduced by adopting proposal of inventory level reduction...........................11
Question 3.................................................................................................................................11
Question 4.................................................................................................................................12
CONCLUDION.............................................................................................................................16
REFERENCES................................................................................................................................1
REFERENCES................................................................................................................................2

INTRODUCTION
Business Finance means management of various sources of finance with the help of
which company can manage their different business activities. Starting the businesses and
managing it requires lot of money which are basically one of the crucial part of top management.
The report will discuss the various methods and concepts of capital budgeting and ratio analysis.
Further, the report will also calculate the cash operating cycle along and discuss the use of it to
the businesses.
Question 1
a) Calculation of Annual relevant cash flows and Net Present Value
Annual Relevant Cash Flows
Calculation of Initial cost of project
= Present value of Lease rent + Initial cost of Plant
= £2376000 + £2500000 = £4876000

Calculation of Net present value of the project
b) Calculation of Internal Rate of Return
Years Cash flows
(£)
Discounting
factor @ 80%
Present value
of cash flows
Discounting