Value Based Management in Relation to Shareholder Value Analysis and Economic Value Added

Business Finance
Investments

Table of Contents
MAIN BODY...................................................................................................................................3
Question 2 Calculation of net cash flows and NPV. ...................................................................3
Question 3. Multiple choice questions.........................................................................................4
Question 4. Explanation of concepts and principles of value based management in relation to
shareholder value analysis (SVA) and economic value added (EVA)........................................6
REFERENCES................................................................................................................................7

MAIN BODY
Question 2 Calculation of net cash flows and NPV.
(a) Preparation of net cash flows:
Cash flow – The term cash flow can be defined as in and out flow of cash during a particular
time period. Herein, below as per the given data of Poly-day plc cash flow is computed which is
as follows:
Statement of cash flow :
Particulars 2011 2012 2013 2014
Sales £40,00,000.00 £80,00,000.00 £80,00,000.00 £40,00,000.00
Less: Purchase of data-master
plant -£2,50,000.00 -£2,50,000.00 -£2,50,000.00 -£2,50,000.00
Less : Variable expenses -£12,00,000.00 -£24,00,000.00 -£24,00,000.00 -£12,00,000.00
Less : Fixed cost -£10,00,000.00 -£20,00,000.00 -£30,00,000.00 -£40,00,000.00
Less : Investment in additional
plant -£40,00,000.00 £0.00 £0.00 £0.00
Less : Depreciation -£7,60,000.00 -£6,15,600.00 -£4,98,636.00 -£4,03,895.16
Add : Disposal of plant £0.00 £0.00 £0.00 £10,00,000.00
Add : Tax allowance £8,10,000.00 £6,56,100.00 £5,31,441.00 £5,31,441.00
Add : Changes in creditors £1,20,000.00 £2,40,000.00 £2,40,000.00 £1,20,000.00
Less : Changes in stock trades -£2,40,000.00 -£4,80,000.00 -£4,80,000.00 -£2,40,000.00
Less : Changes in Debtors -£6,00,000.00 -£12,00,000.00 -£12,00,000.00 -£6,00,000.00
Net cash flow -£31,20,000.00 £19,50,500.00 £9,42,805.00 -£10,42,454.16
Net present value as per the above calculated cash flows :
Net present value – It can be defined as an investment appraisal technique which is used by
companies to compute the present value of investments. Below as per the above calculated cash
flow, the net present value is calculated which is as follows :
Year Cash flow
Present value
factor Discounted cash flows
0 -£10,00,000.00 0.15 -£1,50,000.00