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A Case Study on the Use of Capital Budgeting Techniques in Accounting and Finance

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Added on  2020-03-23

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ACCOUNTING AND FINANCE 6 ACCOUNTING AND FINANCE Accounting and Finance Name of Student: Name of University: Author’s Note: Answer to Part A: Requirement 1: Requirement 2: It is clear from the table shown above the weighted average method have been utilised for determining the future cash flow of the project. Requirement 3: It is clear from the above table that the net value at present is positive and 191.89% is the profitability index of the project. Analysis of the capital structure of APN group

A Case Study on the Use of Capital Budgeting Techniques in Accounting and Finance

   Added on 2020-03-23

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Running head: ACCOUNTING AND FINANCEAccounting and FinanceName of Student:Name of University:Author’s Note:
A Case Study on the Use of Capital Budgeting Techniques in Accounting and Finance_1
1ACCOUNTING AND FINANCEAnswer to Part A:Requirement 1:Particulars012345678Initial Investment($1,650,000)Annual Cash Flow:Incremental Revene$1,445,000$1,589,500$1,748,450$1,923,295$2,115,625$2,327,187$2,559,906$2,815,896Staff Cost($900,000)($954,000)($1,011,240)($1,071,914)($1,136,229)($1,204,403)($1,276,667)($1,353,267)Material Costs($210,000)($222,600)($235,956)($250,113)($265,120)($281,027)($297,889)($315,762)Marketing Costs($46,000)($48,760)($51,686)($54,787)($58,074)($61,558)($65,252)($69,167)Other Costs($25,000)($26,500)($28,090)($29,775)($31,562)($33,456)($35,463)($37,591)Depreciation of Lab($206,250)($206,250)($206,250)($206,250)($206,250)($206,250)($206,250)($206,250)Net Profit before Tax$57,750$131,390$215,228$310,455$418,389$540,493$678,385$833,859Less: Tax on Profit($17,325)($39,417)($64,569)($93,137)($125,517)($162,148)($203,515)($250,158)Net Profit after Tax$40,425$91,973$150,660$217,319$292,872$378,345$474,869$583,701Add: Depreciation$206,250$206,250$206,250$206,250$206,250$206,250$206,250$206,250Annual After-Tax Cash Flow$246,675$298,223$356,910$423,569$499,122$584,595$681,119$789,951Salvage Value$100,000Net Annual Cash Flow($1,650,000)$246,675$298,223$356,910$423,569$499,122$584,595$681,119$889,951Cumulative Cash Flow($1,650,000)($1,403,325)($1,105,102)($748,192)($324,624)$174,499$759,094$1,440,213$2,330,164Payback PeriodRequired Rate of Return16%16%16%16%16%16%16%16%16%Discounted Cash Flow($1,650,000)$212,651$221,628$228,657$233,933$237,639$239,942$241,000$271,458Cumulative Discounted Cash Flow($1,650,000)($1,437,349)($1,215,721)($987,064)($753,131)($515,492)($275,550)($34,549)$236,908Discounted Payback periodNet Present ValueProfitability Index4.657.13$236,908114.36%PeriodCapital Budgeting for Base-Case:
A Case Study on the Use of Capital Budgeting Techniques in Accounting and Finance_2
2ACCOUNTING AND FINANCEParticulars012345678Initial Investment($1,650,000)Annual Cash Flow:Incremental Revene$1,445,000$1,531,700$1,623,602$1,721,018$1,824,279$1,933,736$2,049,760$2,172,746Staff Cost($900,000)($990,000)($1,089,000)($1,197,900)($1,317,690)($1,449,459)($1,594,405)($1,753,845)Material Costs($210,000)($231,000)($254,100)($279,510)($307,461)($338,207)($372,028)($409,231)Marketing Costs($46,000)($50,600)($55,660)($61,226)($67,349)($74,083)($81,492)($89,641)Other Costs($25,000)($27,500)($30,250)($33,275)($36,603)($40,263)($44,289)($48,718)Depreciation of Lab($206,250)($206,250)($206,250)($206,250)($206,250)($206,250)($206,250)($206,250)Net Profit before Tax$57,750$26,350($11,658)($57,143)($111,073)($174,526)($248,703)($334,939)Less: Tax on Profit($17,325)($7,905)$3,497$17,143$33,322$52,358$74,611$100,482Net Profit after Tax$40,425$18,445($8,161)($40,000)($77,751)($122,168)($174,092)($234,457)Add: Depreciation$206,250$206,250$206,250$206,250$206,250$206,250$206,250$206,250Annual After-Tax Cash Flow$246,675$224,695$198,089$166,250$128,499$84,082$32,158($28,207)Salvage Value$100,000Net Annual Cash Flow($1,650,000)$246,675$224,695$198,089$166,250$128,499$84,082$32,158$71,793Cumulative Cash Flow($1,650,000)($1,403,325)($1,178,630)($980,541)($814,291)($685,792)($601,710)($569,552)($497,760)Payback PeriodRequired Rate of Return16%16%16%16%16%16%16%16%16%Discounted Cash Flow($1,650,000)$212,651$166,985$126,907$91,818$61,180$34,511$11,378$21,899Cumulative Discounted Cash Flow($1,650,000)($1,437,349)($1,270,364)($1,143,457)($1,051,638)($990,458)($955,948)($944,569)($922,671)Discounted Payback periodNet Present ValueProfitability IndexCapital Budgeting for Worst-Case:Period10.3450.13($922,671)44.08%
A Case Study on the Use of Capital Budgeting Techniques in Accounting and Finance_3

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