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Business Finance and Economic Appraisal

   

Added on  2020-03-16

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Running head: BUSINESS FINANCEBusiness FinanceName of the Student:Name of the University:Authors Note:
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1BUSINESS FINANCETable of Contents1. Evaluating the items that need to be omitted from the Exhibit 3:..........................................22. Providing the calculation for incremental cash flow for the new project..............................33. Calculating NPV, internal rate of return (IRR) and profitability index (PI) of the newproject:........................................................................................................................................64. Providing adequate sensitivity analysis for best and worse case scenario:............................75. Providing data related to worst, most-likely and best-cases of sales quantity for derivingexpected sales, standard deviation and coefficient variance:...................................................136. Mentioning the change in sales for making the project worthwhile:...................................137. Stating the use of high discount rate for the project with an inflation rate of only 3%:......138. Depicting recommendation for the project, which could be used by the company toimprove its return from investment:.........................................................................................14Reference and Bibliography:....................................................................................................16
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2BUSINESS FINANCE1. Evaluating the items that need to be omitted from the Exhibit 3:The case study evaluation directly indicates that Relevant accounts that needs to beomitted from exhibit 3. Exhibit 3 directly indicates all the relevant expenses that need to beincurred by the organisation to determine whether the project is viable option for generatingrelevant in comment future.Moreover, the accounts that are been omitted is indirect labourexpense and space account expense, which is relatively an extra burden on the expenses.Theindirect labour directly accounts for the supervisor salary, which is mentioned in the casestudy will be conducted by the existing supervisor. Therefore, no increment in expenses isexpected from the indirect labour charges for the current project (Kirschenmann & Norden,2012). The other expenses are related to space which will be taken by the new project andneeds to be deducted from the income. However, the organisation directly aims in using freespace in the current premises, which will directly neglect the expenses towards space.
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2. Providing the calculation for incremental cash flow for the new projectParticulars012345678Initial investment $ 1,000,000 Unit selling price0.56 0.58 0.59 0.61 0.63 0.65 0.67 0.69 Annual sales 1,650,000 1,699,500 1,750,485 1,803,000 1,857,090 1,912,802 1,970,186 2,029,292 Revenue 924,000 980,272 1,039,970 1,103,304 1,170,496 1,241,779 1,317,403 1,397,633 Raw materials$544,500 $560,835 $577,660 $594,990 $612,840 $631,225 $650,161 $669,666 Distribution cost$33,000 33,990 35,010 36,060 37,142 38,256 39,404 40,586 Direct labour$40,000 41,200 42,436 43,709 45,020 46,371 47,762 49,195 On costs$11,520 11,866 12,222 12,588 12,966 13,355 13,755 14,168 Utilities$8,000 8,240 8,487 8,742 9,004 9,274 9,552 9,839 Repairs and Maintenance$7,000 7,210 7,426 7,649 7,879 8,115 8,358 8,609 General factory$18,000 18,540 19,096 19,669 20,259 20,867 21,493 22,138 Depreciation$143,000 235,000 162,000 115,000 89,000 89,000 89,000 46,000 Lost interest$120,000 123,600 127,308 131,127 135,061 139,113 143,286 147,585 TOTAL $925,020 $1,040,481 $991,645 $969,534 $969,170 $995,576 $1,022,773$1,007,786salvage value $ 150,000
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