# What is the Difference Between Business and Finance

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Finance
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CASE 1
Years
Description 0 1 2 3 4
Units 73000 86000 97000 68000
Sales \$
2,73,75,000.
00
\$
3,22,50,000.0
0
\$
3,63,75,000.
00
\$
2,55,00,000.00
Less: Variable Cost \$
1,86,15,000.
00
\$
2,19,30,000.0
0
\$
2,47,35,000.
00
\$
1,73,40,000.00
Less: Fixed Cost \$
42,00,000.00
\$
42,00,000.00
\$
42,00,000.00
\$
42,00,000.00
Less: Depreciation \$
28,33,050.00
\$
37,78,250.00
\$
12,58,850.00
\$
6,29,850.00
EBIT \$
17,26,950.00
\$
23,41,750.00
\$
61,81,150.00
\$
33,30,150.00
Less: Corporate Tax @
21%
\$
3,62,659.50
\$
4,91,767.50
\$
12,98,041.50
\$
6,99,331.50
Net Income \$
13,64,290.50
\$
18,49,982.50
\$
48,83,108.50
\$
26,30,818.50
28,33,050.00
\$
37,78,250.00
\$
12,58,850.00
\$
6,29,850.00
Operating Cash Flows
(per year)
\$
41,97,340.50
\$
56,28,232.50
\$
61,41,958.50
\$
32,60,668.50
Capital Sending \$ -
85,00,000.00
Working capital \$ -
15,00,000.00
After Tax Salvage Value \$
13,60,000.00
Total Cash Flow \$ -
1,00,00,000.
00
\$
41,97,340.50
\$
56,28,232.50
\$
61,41,958.50
\$
46,20,668.50
(A) Payback Period Calculation
Year Cash flows Cumulative Cash Flows
0 \$ -1,00,00,000.00 \$ -1,00,00,000.00
1 \$ 41,97,340.50 \$ -58,02,659.50
2 \$ 56,28,232.50 \$ -1,74,427.00
3 \$ 61,41,958.50 \$ 59,67,531.50
4 \$ 46,20,668.50 \$ 1,05,88,200.00
PAYBACK PERIOD (YEARS) = 3.03
(B) Profitability Index Computation
PI = Present Values of Cash Inflows/ Initial Investment
PI = 1221152.74/10000000
PI = 1.222
IRR = 36%
(D) NPV Computation
Year Cash flows
Present Value
Factors Present Values
0 \$ -1,00,00,000.00 1 \$ -1,00,00,000.00
1 \$ 41,97,340.50 0.8065 \$ 33,84,952.02
2 \$ 56,28,232.50 0.6504 \$ 36,60,400.95
3 \$ 61,41,958.50 0.5245 \$ 32,21,378.99
4 \$ 46,20,668.50 0.4230 \$ 19,54,420.78
NPV 2221152.74
As per the analysis of the project with the aid of different financial evaluation techniques, it
has been recommended to accept the project, based on the following observations. It has been
observed that the NPV of the project is positive. A positive NPV is indicative of initial
investment being covered and the additional profits led by the future cash flows from the
project (Bierman Jr and Smidt, 2012). In addition, the Profitability Index is more than 1,
which indicates the present value of future cash inflows are more than the present value of the
initial investment (Goyat and Nain, 2016). This is in addition to the Internal Rate of Return of
the proposal more than the cost of the capital. Further, as the cut off cash payback period has
been determined to be 3 years, the actual payback is determined to be 3.03 years, which is
well within the limits. Hence, the selection of the project is recommended.

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