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Investment Appraisal Techniques and Applications

   

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. Mentioning the items that need to be omitted from the list provided by the accountant inExhibit 3:....................................................................................................................................22. Providing the incremental cash flow for most likely situation:.............................................33. Evaluating the project based in NPV, internal rate of return (IRR) and profitability index(PI) of the project and detecting whether the project is acceptable if the cut-off period is fiveyears:..........................................................................................................................................64. Showing the sensitivity analysis of both worst and best case scenario provided in exhibit 1:....................................................................................................................................................75. Calculating the expected sales, standard deviation and coefficient variance:......................136. Providing the relevant evaluation for the change in sales with minimum increment of 20%:..................................................................................................................................................137. Stating the reason whether the use of high discount rate is viable approach if the inflationrate is only 3%:.........................................................................................................................138. Depicting relevant recommendation for the production of 10-in and 12-in Pipe:...............14Reference and Bibliography:....................................................................................................15
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2BUSINESS FINANCE1. Mentioning the items that need to be omitted from the list provided by the accountantin Exhibit 3:The evaluation of the list provided by the finance department mainly indicates twoirrelevant accounts such as indirect labour and space, which can be omitted for deriving theactual cash flow of the organisation. After analysing the case study it can be identified thatthe company is providing relevant taxes and no rent for the space is needed. Furthermore, theindirect expenses directly state the supervisor's salary, which is depicted in the case study thatthe current supervisor will monitor the overall work. Hence, the expenses are irrelevant andshould be omitted from the evaluation. Therefore, the identified accounts could eventuallyhelp in depicting the relevant cash flow, which could be used identifying viability of theproject (Awojobi & Jenkins, 2016).
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2. Providing the incremental cash flow for most likely situation:Particulars012345678Initial 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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