Business Finance - Desklib

BUSINESS FINANCE

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................1
a) Computation of net cash inflows and net present value..........................................................1
b) Determination of internal rate of return...................................................................................2
c) Analysis of financial viability of investing in the project........................................................2
d) Determining and comparing the different methods that can be account for risk while
analyzing the viability of project. ...............................................................................................2
QUESTION 2...................................................................................................................................4
a) Calculation of average operating cycle in days and how this measure is put to use ..............4
b) Calculation and interpretation of current and acid test ratio...................................................5
c) Evaluating the different types of risk & cost that can be reduced inventory level..................6
QUESTION 3...................................................................................................................................6
a) Calculating the theoretical ex right price of an ordinary share in Mainsbury PLC.................6
New share price = 54*65% = 35.1...............................................................................................7
b) Calculate the value of the rights associated with holding shares in Mainsbury PLC..............7
c) Evaluating each of the option available to investor.................................................................7
d) comparing and contrasting the various options available to business.....................................8
QUESTION 4...................................................................................................................................8
a) Calculating the ratios for Crusher PLC ...................................................................................8
b) Analysing the financial position of the Crusher PLC ...........................................................13
REFERENCES..............................................................................................................................15

QUESTION 1
a) a) Computation of net cash
inflows and net present value
Particulars Year 2011 Year 2012 Year 2013 Year 2014 Year 2015
Sales (no. of units * rate) (In£) 3600000 4275000 5625000 4050000 2700000
Less: expenses (in£)
Variable labor cost 375 375 375 375 375
Variable material cost 250 250 250 250 250
Lease 550000 550000 550000 550000 550000
Administrative cost 600000 600000 600000 600000 600000
Total expenses 1150625 1150625 1150625 1150625 1150625
Less: Depreciation 500000 500000 500000 500000 500000
Earning before interest and tax 1949375 2624375 3974375 2399375 1049375
Less: Interest 0 0 0 0 0
Earning before tax 1949375 2624375 3974375 2399375 1049375
Less: Tax 0 0 0 0 0
Earning after tax 1949375 2624375 3974375 2399375 1049375
Add: Depreciation 500000 500000 500000 500000 500000
Net cash inflows 2449375 3124375 4474375 2899375 1549375
Year Net cash
inflows
Present
value
factor
Discounted
cash inflows
2011 2449375 0.926 2267939.815
2012 3124375 0.857 2678647.977
2013 4474375 0.794 3551903.133
2014 2899375 0.735 2131127.179
2015 1549375 0.681 1054478.591

Total of present value factor & discounted
cash inflows
14496875 11684096.7
Computation of Net present value
Total discounted cash
inflows 11684096.7
Less: Initial investment 2500000