Corporate Finance: Investment Appraisal Techniques and Cash Flow Analysis

Corporate Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
1. Preparing a cash flow forecast of Wonderpump......................................................................3
2. Assessing the proposed investment by using the capital budgeting tools...............................5
3. Critically evaluate the investment appraisal techniques..........................................................6
4...................................................................................................................................................8
a. Performing a sensitivity analysis or calculation......................................................................8
b. Giving comment on Gunther...................................................................................................9
5. Reassessing the Wonderpump investment.............................................................................10
6.................................................................................................................................................12
A. Merits of debt and equity financing......................................................................................12
b. Assessing the impact of discount rate on AGT’s structure..................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Corporate finance lays more emphasis on increasing value of firm to the shareholders.
This field of finance makes more focus on effective allocation of the financial resources which
aid the growth and success of firm. Besides this, corporate finance also focuses on the
developing highly suitable financial structure that makes contribution in the attainment of
organizational goals and objectives. The present report is based on the case situation of AGT Plc
which is a large sized chemical and engineering business organization. Further, it is also listed on
the recognized stock exchange of London. Hence, the present report will shed light cash position
of the firm. Besides this, it will also provide deeper insight about the extent to which investment
appraisal tools and sensitivity analysis assists in making suitable decision.
1. Preparing a cash flow forecast of Wonderpump
Cash flow statement furnishes information regarding the revenue generated by the firm
during the specified time frame. Besides this, it also provides deeper insight regarding the
amount invested by the firm for performing the business activities and functions (Damodaran,
2016). This in turn provides information to the business unit about net cash flow position or
aspects and thereby assists in making suitable decision.
Cash flow of AGT Plc from 2012 to 2021 are enumerated below:
PARTICULAR 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
VOLUME
(UNITS) 200 300 500 600 500 400 250 150
SALES PRICE
12,0
00
12,0
00
8,00
0 8000 8000 8000 8000 8000
SALES
2
,400,
000
3
,600,
000
4
,000,
000
4
,800,
000
4
,000,
000
3
,200,
000
2
,000,
000
1
,200,
000
COST OF
SALE
5,00
0
5,00
0
5,00
0
5,00
0
5,00
0
5,00
0
5,00
0
5,00
0
TOTAL COST
OF SALE
-
1,00
0,00
0
-
1,50
0,00
0
-
2,50
0,00
0
-
3,00
0,00
0
-
2,50
0,00
0
-
2,00
0,00
0
-
1,25
0,00
0
-
750,
000

SUB TOTAL
1
,400,
000
2
,100,
000
1
,500,
000
1
,800,
000
1
,500,
000
1
,200,
000
750,
000
450,
000
SALES
REPRESNTATI
VE
-
250,
000
-
250,
000
-
100,
000
-
100,
000
-
100,
000
-
100,
000
-
100,
000
-
100,
000
TECHNICAL
SUPPORT
-
150,
000
-
150,
000
-
50,0
00
-
50,0
00
-
50,0
00
-
50,0
00
-
50,0
00
-
50,0
00
TOTAL(B)
1
,000,
000
1
,700,
000
1
,350,
000
1
,650,
000
1
,350,
000
1
,050,
000
600,
000
300,
000
TAX
-
300,
000
-
510,
000
-
405,
000
-
495,
000
-
405,
000
-
315,
000
-
180,
000
-
90,0
00
TOTAL
OPERATING
CASH FLOW
1
,000,
000
1
,400,
000
840,
000
1
,245,
000
855,
000
645,
000
285,
000
120,
000
-
90,0
00
INVESTMENT
CASH
INFLOW(CAP
EX)
-
800,0
00
INVENTORIES
(FG)
-
50,00
0
50,0
00
INVENTROIES
RAW
MATERIALS
-
300,0
00
-
450,
000
-
750,
000
-
900,
000
-
750,
000
-
600,
000
-
375,
000
-
225,
000
change
-
300,0
00
-
150,
000
-
300,
000
-
150,
000
150,
000
150,
000
225,
000
150,
000
225,
000
TRADE
RECEIVEABL
ES
-
394,5
21
-
591,
781
-
657,
534
-
789,
041
-
657,
534
-
526,
027
-
328,
767
-
197,
260
CHANGE
-
394,5
21
-
197,
260
-
65,7
53
-
131,
507
131,
507
131,
507
197,
260
131,
507
197,
260
TRADE
PAYABLES
49,31
5
73,9
73
123,
288
147,
945
123,
288
98,6
30
61,6
44
36,9
86
CHANGE
49,31
5
24,6
58
49,3
15
24,6
58
-
24,6
58
-
24,6
58
-
36,9
86
-
24,6
58
-
36,9
86
NET CASH
FLOWS
-
1,495,
205
677,
397
1
,083,
562
583,
151
1
,501,
849
1
,111,
849
1
,030,
274
541,
849
555,
274
-
90,0
00