Types of Finance and Financial Services | Assignment

Running head: FINANCE AND FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Question 1: CAPITAL EXPENDITURE DECISION.....................................................................2
Question 2........................................................................................................................................6
Question 3........................................................................................................................................7
Question 4......................................................................................................................................10
References......................................................................................................................................12

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Question 1: CAPITAL EXPENDITURE DECISION
The project analysis has been done for the Cyach Project whereby relevant analysis has
been done in the field of relevant cash flows that the company would be experiencing and the
same would be done with the help of financial projections that has been done for the company,
The project proposed by the Cyach Plc is for a sum of ten years which is the useful life of the
machinery involved in the production process. However, the useful life or the innovative life
cycle for the product will only be for a sum of five years whereby relevant changes in the cash
flows would be taken into consideration.
a) The net present value of the project was calculated with the help of the net cash flows that the
Cyach Plc Company would be experiencing from the new proposed project. The key
assumptions that are in particular used by the company for the purpose of calculating and
evaluating the cash flows of the company has been in particular associated with the selling of
products that the company would be selling. The initial set of investment that the company
would be doing will be around 1,610,000 and the same would be in the form of initial investment
that the company would be doing, occupancy expense, sales and marketing cost that the
company would be doing in the initial stage of project. The sales unit or the total amount of units
that would be sold by the company in the first year of operations would be around 80,000 and the
same would be increasing to around 90,000 from the second year to fifth year which is the
expected innovative life of the product. On the other hand, the key expenses that the company
would be incurring will be primarily in the field of fixed cost which has been charged for the
sum of five year as the same is directly related to the production that the company would be
doing. The variable cost will be proportionate to the amount of units sold and produced by the
company. Overhead charges has been in particular charged with respect to the sales amount that
the company would be doing and the same would be around 8% of the sales value that will be
reported by the company. A sum of 20,000 has also been allocated as a further expenditure that
the company would be experiencing in the due course of project for a sum of five years.
Depreciation has been charged on a straight line basis for the amount of investment done by the
company in the purchase of machinery which was around 1,500,000 and the same would be
considered for depreciation purpose after considering the salvage value of 250,000 that would be

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flowing. The depreciation expenses that the company has reported has been around 136,000
which has been charged for a sum of ten years for the company.
The key assumption that has been placed for valuing the inventory which has been
around 15% of the total sales amount will be reported by the company stating that the company
is actually producing 115% of the product out of which 100% has been well reported in the form
of sales in each of the respective years. The remaining amount which is not sold by the company
will be marked in response with the actual value that the company remains with at the end of
fifth year. The total amount that has been marked down in each year time period will be around
15% of sales and the same has been well treated as a recovery into the final five-year time period
analysed. The discount rate that has been used for the purpose of valuing the project has been
around 14% which has been well used for the purpose of estimating or finding out the discounted
cash flows for the company. The net present value determined by taking all the cash inflows and
outflows and all of the given set of data was around 592,390 and the resultant IRR for the project
has been around 7.99% for the project.
b) Sensitivity Analysis for the project well shows the uncertainty that is reflected in the output of
a mathematical model or a system that can be well divided and been allocated to a various
sources of uncertainty in the inputs placed. The sensitivity analysis has been well performed for
the project with the help of the changes in the sales price or the unit price per product that the
company would be selling and the associated changes that would be observed in the cash flows
of the company. The sensitivity analysis in particular has been done by changing the sales price
of the from 35 to 32 price per unit and the resultant changes that were observed in the NPV of
the project was around -90,441 and the IRR from the project was calculated to be around -1.23%.
c) Net Working Capital investment treatment is usually done by observing the amount of cash
flow that would be invested in the project in the form of excess current assets the company
would be reporting in response to the given current liabilities and the changing values observed.
The treatment of net working capital observed by the company will be in the form of inventory
that has been reported down by the company for the defined point of time. The recovery of the
inventory in this case has been done at the end of five years by the company in the form of total
value of inventory that the company is remaining with which has been well calculated with all
the total amount of inventory in each of the year analysed.