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Business Finance - Assignment PDF

   

Added on  2021-06-18

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Running head: BUSINESS FINANCEBusiness financeUniversity NameStudent NameAuthors’ Note
Business Finance - Assignment PDF_1

2BUSINESS FINANCETable of ContentsIntroduction:...............................................................................................................................3Discussion:.................................................................................................................................3Answer to question 1:.................................................................................................................6Answer to question 2:.................................................................................................................8Answer to question 3:.................................................................................................................9Answer to question 4:...............................................................................................................10Answer to question 5:...............................................................................................................10Requirement a).........................................................................................................................10Requirement b).........................................................................................................................12Requirement c).........................................................................................................................12Answer to question 6:...............................................................................................................16Conclusion:..............................................................................................................................16Reference list and Bibliography:..............................................................................................17
Business Finance - Assignment PDF_2

3BUSINESS FINANCECase study: Radiant laundry Product CompanyIntroduction:This particular assignment intends to evaluate the project by employing techniques ofcapital budgeting. Analysis of the project is done by answering the questions concerning theproject. The radiant laundry product company is the leading producer of laundry detergenthaving two major product lines that is traditional power detergent and concentrated powerdetergent. Project that is considered by the company is intended to involve in the productionof new product that is a liquid detergent product called FAB. It is perceived by company thatthis product have advantage over the conventional detergent product in terms of bettercleaning capabilities, reduced usage of detergent and easier to control and use. The packagingfacilities new production equipment for the production of new liquid detergent are proposedto be sourced from two organizations that is Donnalley limited and Danforth limited. Severalparameters that are associated with making investment in Donnalley limited are that theestimated life of investing in this particular project is ten years having an expected salvagevalue of $ 80000. The rate of depreciation assumed for the packaging and equipmentfacilities stood at 35% and the depreciation will be done on a reducing balancing basis. Onother hand, investing in Danforth project would initially cost $ 1.3 million and this compriseof packaging facilities and equipment. This will help in reducing the cost of debt to $ 0.8million compared to $ 1.5 million. The expected life of new equipment would be five years.The total life time of this particular project would be ten years. All the questions answeredbelow would be in conducting the in depth analysis of the projects that the company isseeking to undertake for producing the liquid detergent. However, in order to makeinvestment in Donalley would require additional working capital of $ 100000.
Business Finance - Assignment PDF_3

4BUSINESS FINANCEDiscussion:Capital budgeting is the technique that is used by business enterprise or individual forbig investment projects and it is used for evaluating whether a particular project undertaken isfeasible enough to make investment in. there are two concepts involved in the analysis of theprojects that is future or initial outlays that is expected for the acquisition of assets andexpected flows of cash that is generated by assets utilization. There are two criteria of capitalbudgeting techniques or the investment appraisal tool that is discounted cash flow criteria andnon discounting cash flow criteria (Alhabeeb, 2016). Evaluation of project is done by using both the criteria of tool of appraisal. Thetechniques used under the discounting cash flow criteria are net present value, profitabilityindex and internal rate of return (Longin, 2016). On other hand, non discounted cash flowcriteria make use of accounting rate of return and payback period as the appraisal tool. For evaluating the investment projects, one of the well known methods is technique ofnet present value. The acceptance or rejection of project depends upon the figures of netpresent value. A positive value is usually indication of the fact that the project should beaccepted and a negative value depicts that the project should be rejected. In this method, thepresent valuation of the future value of cash flow is computed by using an appropriatediscounting rate. Another method of evaluation of project is internal rate of return that is therate at which the net present value of project is zero. For the purpose of evaluation of project,it is required by investor to make comparison between the internal rate of return and the costof capital of organization. Investors should make acceptance of the project if the cost ofcapital is lower than the internal rate of return (Balakrishnan et al., 2016). On other hand, theproject should be rejected if the cost of capital is more than internal rate of return.
Business Finance - Assignment PDF_4

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