Finance Project 3

This document provides a detailed analysis of various topics related to finance. It includes an analysis of a proposed tunnel project, the maximization of shareholder wealth, a comparison of the financial performance of Sydney Water Services and Melbourne Water Services, the competence of the Melbourne water service manager to make financial decisions, and the consequences of having a common MIS service for both companies.

Finance Project 3

Table of Contents
PART A...........................................................................................................................................1
Analysis of proposed tunnel project............................................................................................1
PART B............................................................................................................................................2
Maximisation of shareholder wealth...........................................................................................2
Advantage and disadvantage of alternative goals.......................................................................2
Negotiation process.....................................................................................................................3
PART C............................................................................................................................................3
Comparison of the financial performance of Sydney Water Services and Melbourne Water
Services.......................................................................................................................................3
Competence of the Melbourne water service manager to make financial decisions .................4
Consequences of having a common MIS service for both companies........................................4
PART D...........................................................................................................................................5
Covered in PPT...........................................................................................................................5
REFERENCES................................................................................................................................6

PART A
Analysis of proposed tunnel project
Year No of years $ Discount Factor PV
2010 1 (450) 0.921 414.45
2011 2 (500) 0.847 423.5
2012 3 (550) 0.781 429.55
2013 4 (650) 0.718 466.7
2014 5 (200) 0.662 132.4
2015 6 200 0.609 121.8
2016 7 300 0.562 168.6
2017 8 320 0.517 165.44
2018 9 340 0.476 161.84
2019 10 360 0.439 158.04
2020 11 400 0.404 161.6
2021 on words 400 0.372 148.8
? ?
Formulas:
Real risk-free rate = Domestic risk free rate – Inflation rate
Discount rate = real risk-free rate + (Market Premium X Beta)
Discount Factor = Number of year X Discount rate
= 6% + 2 % * 1.3
= 6 + 2.6 = 8.6%
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PART B
Maximisation of shareholder wealth
The main objective of company have potential profit when organisation does well and
potential loss when business does poorly. Maximization shareholder wealth is main objective of
the company that often superior goals of business and developing profitability to enhance the
dividends paid out for every common stock. For the maximisation requires to follow these things
such as:
 Enhance unit price
 Sell more units
 Increase fixed cost utilisation
 decrease cost unit
From the different objectives proposed for an entity concern, shareholders wealth
maximisation is reasoned the most effective and sustainable objective for business concern.
Through maximization take effective decisions and provide market value of shareholder wealth.
It is an objective of financial management and other business decisions modify the shareholders
to accomplish their objectives and superior can enhance profitability. For financial managers, it
is a decision criterion that used for all main decisions. Therefore, the main objective function that
increase shareholder wealth increase social well-being after that further increase the total market
value for the advantage of all stakeholders. By the maximization of shareholder health increase
good will of company in market that supports top increase profit maximization.
Advantage and disadvantage of alternative goals
Cash flow generation
 Advantage: It provide advantage in proper management of cash flow activities and know
actual position of cash in business. It provides detailed information of cash inflow and
cash outflows.
 Disadvantage: It is not helping in effective decision making procedure so manager not
able to take right decision.
Profitability as measured by profits after tax and return on investment:
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 Advantage: It is a good way to measure profitability of business effectively after that take
tough decisions in regard of investment because it helps to analysis the actual position of
business effectively.
 Disadvantages: Every time it is not presenting right position so it mislead and take wrong
decision in regard of management.
Negotiation process
Negotiation is a procedure in which two or more people identify issues or arrive at a
better results by compromise. It is a way in which neglect arguing and come to an agreement
with that both parties feel satisfied. For the negotiation requires to follow a particular procedure
that supports to present potential impact on business such as:
 Supports in neglect future problems and conflicts
 Deliver lasting, quality solutions instead of poor short term solution and fulfil
requirement of every party.
 Supports in develop better relationships
PART C
Comparison of the financial performance of Sydney Water Services and Melbourne Water
Services
2020 2019
Sydney Water Services
Return On Capital
Employed (ROCE)
(Profit before interest/
Capital employed) *100%
14/170*100=8.2
4 17/140*100=12.15
Sales margin
(Profit before interest /
Sales) *100%
14/31*100=45.1
7 17/30*100=56.67
Asset turnover Sales / Capital employed
31/170*100=18.
24 30/140*100=21.43
Gearing ratio
Long- term debt/ (Long-
term debt + equity) 120/120+0=100 87/87+0=100
Current ratio Current assets/ Current nil nil
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liabilities
Melbourne Water
Services
Return On Capital
Employed (ROCE)
(Profit before interest/
Capital employed) *100% 1/31*100=3.24 12/30*100=40
Sales margin
(Profit before interest /
Sales) *100% 1/20*100=5 12/35*100=34.29
Asset turnover Sales / Capital employed 20/31=0.65 35/30=1.17
Gearing ratio
Long- term debt/ (Long-
term debt + equity) 0 0
Current ratio
Current assets/ Current
liabilities 12/4=3 12/4=3
Competence of the Melbourne water service manager to make financial decisions
There are analysis the financial performance of Melbourne water service in which
analysis two year ratio that provide that return on capital employed 3.24% in 2020 and 40% in
2019 that presents major differences and do not present good performance. Moreover, sales
margin of company is 5% in 2020 and 34.29% in 2019 so it presents large differences in between
two years. Such ratios are not presenting good performance of business and in 2019 and 2020
face big differences in results. Thus on the basis of such results manager is not able to take right
decision in regard of business development and any new projection.
Consequences of having a common MIS service for both companies
Management information system is a computer system that use by the business to
conduct different operational activities. Through this system collects data that supports in online
system, review the information and reports data in management decision making. There are
mentioned common consequences of management information system such as:
 Lack of strategy: For the application of this system requires to prepare effective strategy
that can not possible for any business easily. Melbourne and water service use this system
but face many problems for collection of data and putting information is big challenge.
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 Keeping up with change: Through this system apply many changes so it will impact on
the business operational activities. It impact on the business in negative manner and
create problem in communication for both organisations.
PART D
Covered in PPT
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REFERENCES
Books and Journals
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