Finance

\nGUIDELINES FOR ASSIGNMENT\n1. If assignment is Question & Answer based then.\n• Introduction is needed for each question.\n• Question has to be answered based on the mark allotted for each question with references if any idea or information is taken from other source.\n2. If assignment is case based then,\n• Executive summary\n• Table of content\n• Body of assignment (questions related to case need to be answered)\n• Conclusion / Recommendation if any\n• References (in-text + citation) to be used.\n

Finance
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Table of Contents
QUESTION 1...................................................................................................................................4
Introduction..................................................................................................................................4
1. Explain the importance of analysis financial statement through ratios...................................4
2. Calculate the following ratio of Albert Ltd..............................................................................5
QUESTION 2...................................................................................................................................6
Introduction..................................................................................................................................6
1. Calculation of future value.......................................................................................................7
2. Explanation of time value of money........................................................................................8
QUESTION 3...................................................................................................................................8
Introduction..................................................................................................................................8
1. Calculation of pay back period................................................................................................8
2. Capital budgeting process of an organisation..........................................................................9
QUESTION 4.................................................................................................................................10
Introduction................................................................................................................................10
(a). Calculate WACC by using Book Value..............................................................................10
(b). Calculate WACC by using Market Value...........................................................................11
(c). Explain the factors which affect the Cost of Capital...........................................................12
QUESTION 5.................................................................................................................................13
Introduction................................................................................................................................13
(a). Calculate the NPV or Profitable Index and suggest that which project should be adopted 13
(b). Explain the key decisions which taken by the finance manager in the organization..........15
QUESTION 6.................................................................................................................................16
Introduction................................................................................................................................16
1. Short note on Financial Management Expression.................................................................16
QUESTION 7.................................................................................................................................18
Introduction................................................................................................................................18
1. Calculate tax liability of Robbins Corporation......................................................................19
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2. Explain the importance of taxation in the economy and how it contributes in the society for
its welfare...................................................................................................................................19
REFERENCES .............................................................................................................................21
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QUESTION 1
Introduction
Financial ratio also called accounting ratio which help the organization to know about
company's abilities and performance. Different ratio calculated for the different purpose such as
gross profit, net profit ratio used to identify the profitability of the company and the other hand,
account receivables ratio used to calculate business efficiency (Antonopoulos and Hall, 2016).
This question is about the importance of financial analysis with the help of ratio. In addition, it
includes the calculation of Account Receivable Turnover ( ART ) or Average Collection Period
Ratio ( ACPR) .
1. Explain the importance of analysis financial statement through ratios
Analysis of financial statements is the process of reviewing, monitoring or take better
decisions in order to improve their economic performance as well as profitability (Ward and
Forker, 2017). These statements are profit & loss statement, cash flow, balance sheet, change in
equity statement etc. basically it is required for the stakeholder analysis and it includes creditors,
investors, shareholders, general public, government, management of the company to make
effective decisions etc. With the help of ratio, business able to evaluate the overall performance
which is very important for the organizations which are discussed below:
 Judging efficiency: With aid of ratio analysis business able to justify the company's
performance in terms of operations and management. Also beneficial in terms of
analysing how business utilize their business assets or maximise their profit margin using
various accounting principles or standards.
 Locating weakness: It helps in locating operational weakness and further management
have to pay more attention to improve their their performance as well as productivity.
Ratio analysis used to evaluate efficiency of the business and which part required
improvement. Management used to locate the area or factor which affect the overall
profit or production. After that, managers formulate strategies to improve the
performance as well as productivity.
 Formulating strategies: with the help of ratio analysis, management identify the growth
of the business (Brusca, Gómez‐villegas and Montesinos, 2016). If any improvement
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required then managers formulate strategies on the basis of actual outcomes. By using
past financial information business make future plans in order to reach company's goals
& objectives.
 Comparing performance: Ratio analysis help the organization to compare their current
operational performances with the help of previous one. It will show clear difference in
the performance in terms of profit or loss (Vasu, Stewart and Garson, 2017). Further
management build strategies accordingly and make sure to implement in order to
maximise overall productivity as well as profit margin of the business.
Above mention elements are the beneficial for the organizations and it will be possible
with the help of ratios analysis. Managers used to compare results and formulate further plans in
order to maximise their performance as well as efficiency which helps in meeting business goals
& objectives.
2. Calculate the following ratio of Albert Ltd
Accounts Receivable Turnover: It is the efficiency ratio which help the organizations to
check their ability that how many times business can convert their receivables into cash during
the period (Accounts Receivable Turnover, 2020). With the help of average receivable, company
measure their efficacy of collecting money from their creditors such as customers. Lower the
ratios is beneficial for the company which make maximise the overall liquidity of the business.
Given information help the individual to calculate average receivables and its formula or
calculation are as follow:
Formula:
Accounts Receivable Turnover = Net Credit Salas / Average Accounts Receivable
Calculation:
Net credit sales = $ 80,000
Average Accounts Receivable = $ 4,000
Accounts Receivable Turnover = $ 80,000 / $ 4,000
= 20
Company able to collect their receivables 20 times in a year.
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Working Notes:
Net credit sales = Gross sales – Cash sales
= $ 100,000 - $ 20,000
= $ 80,000.
Average Accounts Receivable = Account Receivable – Sales Return
= $ 11,000 - $ 7,000
= $ 4,000.
Average Collection Period Ratio: It is the average collecting period of their receivables
which takes by company into their accounts (Burtonshaw-Gunn, 2017). In other words, it is the
financial ratios which is used by the business to identify that how many day required to required
to collect their receivables and converted into cash. Its formula or calculation are as follow:
Formula:
Average Collection Period Ratio (ACPR) = 365 days / Accounts Receivable Turnover
Calculation:
Average Collection Period Ratios = 365 / 20
= 18.20
Albert Ltd required around 18 to 19 days to recover their receivables from their creditors
to maximise the liquidity for the further operational performance.
With the help of above mention ratio, business able to understand that in how many days
they recover money from their receivables. It also helps the managers to make their credit policy
more stronger and try to recover their money more faster.
QUESTION 2
Introduction
When an individual or a company is willing to make investment for future then it is very
important for them to analyse the interest rate so that it could be analysed that the invested
money will be able to generate higher returns (Chandra, 2017). Another element which should be
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focused by an investor is time value of money because with the help of it higher returns could be
generated.
1. Calculation of future value
Future value: It can be defined as a value an asset in a specific date in future after
interest. There are various types of factors which are ignored while its calculation. These are
fluctuating rates of interest, currency values, inflation etc. as all of them may affect the actual
value of asset in upcoming period. While calculating it, it is very important for the investor to
analyse that which type of interest is generated by them on their investment. It could be simple or
compound.
Formula of future value: Present value (1 + I)n (Here, I = interest rate, n = time)
Provided information
Particulars Detail
Present value or amount of investment $ 7000
Interest (Discount rate) 10%
Years 5
The calculation of future value for the annual investment of $ 7000 for five years is as
follows:
Years Details Final value ($)
1 $ 7,000 ( 1 + 0.10 )1 7,700
2 $ 7,000 ( 1 + 0.10 )2 8,470
3 $ 7,000 ( 1 + 0.10 )3 9,317
4 $ 7,000 ( 1 + 0.10 )4 10,249
5 $ 7,000 ( 1 + 0.10 )5 11,274
Total future value after 5 years 47,010
Note: It is being estimated that the interest will be provided on simple interest rate rather
than compound.
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From the above table it has been analysed that at the end of fifth year the future value will
be $ 11274 and total value on this date will be $ 47010 for the investor.
2. Explanation of time value of money
Time value of money: It can be defined as a concept which demonstrates that monetary
resources which are available at present are worth more than identical sum in the upcoming
period because of its capacity to generate potential earning. For investors it is very important to
have detailed information of it because a dollar which could be invested by them in a project
worth more than that one which is promised in future (Chung and Chuang, 2016). By focusing
upon it they will be able to invest their funds appropriately and generate capital gain for future.
QUESTION 3
Introduction
Capital budgeting can be defined as a process which is focused by business entities to
select best suitable investment option to invest monetary resources (Ferguson and Morton-
Huddleston, 2016). There are various investment appraisal techniques which could be used by
organisations to evaluate different alternatives. These are pay back period, NPV, ARR and IRR.
1. Calculation of pay back period
Pay back period: It is an investment appraisal technique which is used to calculate the
time period which is needed to recover the total cost of an investment. With the help of it
associated risk of the projects could be analysed before selecting them to work on. If it is short
then it means that proposed investment is a good option.
Formula for calculation: There are two different formulas which are used for the
calculation of pay back period. Both of them are as follows:
When cash inflow is same during the years: Cash outflow or initial investment / cash
inflow
When cash inflow is not same during the years: Completed years + [ ( Cash outflow –
CCI ( Cumulative cash inflow ) of completed year ) / Cash inflow of upcoming year ]
As the cash inflow of the project is not same so the second formula will be used for
current calculations:
= 3 + ( $ 150,000 – $ 115,500 ) / $ 38,500
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= 3 + $ 34,500 / $ 38,500
= 3 + 0.8961
= 3.8961 or 3.90 years
Calculation of cash inflow:
Years Profit after dep.
( A )
Depreciation
( B )
Cash inflow ( A +
B )
Cumulative cash inflow
1 25000 13500 38500 38500
2 25000 13500 38500 77000
3 25000 13500 38500 115500
4 25000 13500 38500 154000
5 10000 13500 23500 177500
6 10000 13500 23500 201000
7 10000 13500 23500 224500
8 10000 13500 23500 248000
9 10000 13500 23500 271500
10 10000 13500 23500 295000
Calculation of annual depreciation: Total outflow – Salvage value / Estimated life
= $ 150000 – $ 15000 / 10
= $ 135000 / 10
= $ 13500
From the above calculations it has been determined that the investor should select this
project because the cost of it will be recovered in less than 4 years.
2. Capital budgeting process of an organisation
In all the organisations specific process for the purpose of capital budgeting is followed
all the steps of it are described in following table:
Steps Description
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Step 1: Project
identification and
generation
Firstly, organisations select a new project for the purpose of
investing monetary resources in future (Capital budgeting process,
2015). For example, buying a new machine, expanding existing
project line etc.
Step 2: Project screening
and evaluation
At this stage, different options to make investment are screened and
then all of them are evaluated to invest in one of them. Here,
management also analyse benefits and drawbacks of each
alternative.
Step 3: Project selection When all the options are evaluated then one of them is selected to
invest funds. The decisions of selection is made on the basis of
suitability of project.
Step 4: Implementation Here, the selected project is implemented and investment is made in
the same for the purpose of generating higher returns in future.
Step 5: Performance
review
It is the last stage of capital budgeting in which companies review
performance of selected alternative so that it could be analysed that
investment is able to meet predetermined objectives or not.
QUESTION 4
Introduction
Capital structure refer to the sources which company required to manage their operational
requirements and collecting funding from various sources such as debt, equity, preference,
common shares etc. Each fund required to pay their cost so with the help of WACC, business
able to evaluate overall cost of capital as per the proportion they contribute in the organizations
(Finkler, Smith and Calabrese, 2018). This part include the calculation of Kay company where
average cost calculated by using book or market value of different capital structure. In addition,
it includes the various factors which affecting cost of capital of the company.
Weighted Average Cost of Capital ( WACC ) is the overall calculation of company's
cost of capital which divided into different capital structures and evaluate in proportionate basis.
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In the organizations, there are various source of capital such as debenture, preference shares,
common stocks, bonds, equity, other debt etc. Further calculation of WACC is mentioned below
along with the formula:
(a). Calculate WACC by using Book Value
Formula:
WACC = [ (Ke * BVe) + (Kp * BVp) + (Kd * BVd) + (Kd * BVd)] / Total capital
Calculation:
= { ( $ 1500,000 * 0.15 ) + ( $ 100,000 * 0.09 ) + ( $ 200,000 * 0.10 ) + ( $ 300,000 *
0.07) } / $ 2100,000
= { $ 225,000 + $ 9,000 + $ 20,000 + $ 21,000 } / $ 2100,000
= $ 275,000 / $ 2100,000
= 0.130952381
= 13.09 %
Here,
Ke = Total cost of equity before making changes
Kp = Total cost of preference shares before making changes
Kd = Total cost of debts before applying changes
Kd = Total cost of debenture
Bve = Book value of equities
BVp = Book values of preference shares
BVd = Book value of debts
BVd = Book value of debentures
Working Notes:
Capital Structure Book Value Percentage of Cost
Preference 100,000 9 %
Debenture 300,000 7 %
Equity 1,500,000 15 %
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Debt 200,000 10 %
Total Capital 21,00,000
(b). Calculate WACC by using Market Value
Formula:
WACC = [ (Ke * MVe) + (Kp * MVp) + (Kd * MVd) + (Kd * MVd)] / Total Capital
Calculation:
= { ( $ 1700,000 * 0.15 ) + ( $ 110,000 * 0.09 ) + ( $ 330,000 * 0.07 ) + ( $ 180,000 *
0.10)} / $ 23,20,000
= { $ 255 000 + $ 9,900 + $ 23,100 + $ 18,000 } / $ 23,20,000
= $ 306,000 / $ 23,20,000
= 0.131896552
= 13.18 %
Here,
Ke = Cost of equity
Kp = Cost of preference shares
Kd = Cost of debts
Kd = Cost of debentures
MVe = Market value of total equities
MVp = Market value of all the preference shares
Mvd = Market value of debts
Mvd = Market value of debentures
Working Notes:
Capital Structure Market Value Percentage of Cost
Preference 110,000 9 %
Debenture 330,000 7 %
Equity 1,700,000 15 %
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Debt 180,000 10 %
Total Capital 23,20,000
(c). Explain the factors which affect the Cost of Capital
There are various factors which affect the cost of capital of the company and it discussed
below:
 Current economic condition: If economic conditions is good than it will positively
impact the organization as well as cost of capital. Such as, if number of banks increases
than they will provide loan at lower rate because they required to maximise their sales. In
result, it will reduce the cost of debt which is a part of cost of capital. On the other hand,
in recession time no financial institutions will reduce interest rate because further they
have to repay customers. Economic situations will affecting cost of capital which further
affect the overall profit margin of the company.
 Current capital structure: It is one of the important factors which affect the cost of
capital because if debt is higher than equity than they have to pay more cost of debt. On
the other hand, if shares are more than debt than they have to pay more cost of equity. So
management need to optimise their capital structure because it also affect the cost of
capital which is required to maintain.
 Current dividend policy: Every organization make dividend policy where they need to
set amount in order to pay as dividend to its shareholders. Management need to analyse
that, if PE ratio increases than it will reduce the retained earning cost (Factors Affecting
Cost of Capital, 2019). So firm retained the amount and further used as a source of fund
to promote their business operations.
QUESTION 5
Introduction
Investment appraisal technique is the tool which is followed by the organizations and
evaluate that project is beneficial as well as profitable for the business or not (Fisher, 2018).
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There are various method to measure that investment required to done or not. Such as net present
value, profitable index etc.
Net Present value: It is one of the suitable method which is used by the organizations at
the time of making investment related decisions. Basically it is used for capital budgeting or
investment planning and ensure that selected project is beneficial for the firm. It is the difference
of present value of cash flow or future value of cash flow. Higher the Net Present Value is
beneficial and it means project is profitable to invest for the business.
Profitability Index: It is the profit investment ratio which is used by the organizations to
rank their project and select accordingly. It is calculated through dividing present value of future
cash flow with initial investment (Karadag, 2017). More than one PI is considered as good for
the firm or the higher value in comparison to other projects.
(a). Calculate the NPV or Profitable Index and suggest that which project should be adopted
Calculation for Project M:
Year Cash flow ( $ ) Present Value factor
@ 10%
Discounted Cash
Flow
0 100,000 1 -$ 100,000
1 10,000 0.909 $ 9,090
2 15,000 0.826 $ 12,390
3 20,000 0.751 $ 15,020
4 25,000 0.683 $ 17,075
5 30,000 0.620 $ 18,600
Present value $ 72,175
Net Present value ( NPV ) −$ 27825
Calculations:
NPV = Total cash flow – Initial investment
= $ 72,175 – $ 100000
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= −$ 27,825
Profitability Index = PV of future cash flow / Initial investments
= $ 72,175 / $ 100000
= 0.72175 or 0.72
Calculation for Project N:
Year Cash flow ( $ ) PV @ 10% DCF
Year 0 100,000 1 -$ 100,000
Year 1 25,000 0.909 $ 22,725
Year 2 25,000 0.826 $ 20,650
Year 3 25,000 0.751 $ 18,775
Year 4 25,000 0.683 $ 17,075
Year 5 25,000 0.620 $ 15,500
Present value $ 94,725
Net Present value ( NPV ) -$ 5275
Calculations:
NPV = Total cash flow – Initial investment
= $ 94,725 – $ 100,000
= - $ 5275
Profitability Index = PV of future cash flow / Initial investments
= $ 94,725 / $ 100,000
= 0.94725 or 0.94
With the help of above calculation it is observed that Project M or Project N both are not
good to invest. Because NPV of Project M is -$ 27825 or PI is 0.72 which is under the standards.
In comparison, Project N is more suitable because its NPV is -$ 5,275 or PI is 0.94 that is near
by one. So, it is recommended that both projects are not good to invest because they are not
profitable but project N is less profitable or XYZ Construction can invest into this project.
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(b). Explain the key decisions which taken by the finance manager in the organization
There are three key decisions which taken by the finance managers and ensure that it will
maximise the return or minimise the overall business risk (Martin, 2016). It discussed below:
Investment related decisions: Organization has many options to invest but initially they
need to evaluate each option and compare that which is more profitable as well as beneficial to
invest for the business. There are various factors which affect the investing decisions such as risk
& return of the project, cash flow, etc. Finance manager need to understand all aspect and make
decisions accordingly. For example: If there is two project and first one provide higher returns in
comparison to second one. Than managers select the first project on the basis of return factor.
Finance related decisions: When company required money for the further actions or
perform their operational activities. Than finance managers needs to make decisions that from
where they can borrow money. There are two options available such as owners fund or borrowed
fund. For example: managers can borrow money from banks to fulfil their operational
requirements.
Dividend related decisions: Finance managers should make decision regarding
distribution of surplus among the different parties such as shareholders, employee, creditors etc
(Michalak, 2016). For example: If company earn profit, so finance managers need to decide that
they have to distribute this profit to satisfy their shareholders to retain for the future as a sources
of fund.
QUESTION 6
Introduction
Financial management is a tool which involves controlling, properly allocating and
obtaining assets and liabilities of company (Mitchell, 2017). Financial management also
includes monitoring actions of finances such as expenditure, revenue, clash flow, profits,
accounts receivables and payables. Money is the most essential assets of entity having huger risk
associated with it, financial management tool enables company to manage funds and recognize
efficient investment market for earning profits and increasing the wealth of company. It aids
organisation in taking ethical decisions and improving its cash flow position.
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1. Short note on Financial Management Expression
 Risk is defines as the potential for uncontrolled loss of something valuable such as cash,
assets. In financial term risk is related to money such as credit risk or liquidity risk,
organisations need to undertake some measures for mitigating and reducing risk of losses
or losing any finances. Financial management technique enables management to take
appropriate decisions, identifying, analysing and mitigating any type of risk while
making investments. Risk management methods are used by entities to reduce their
financial risks, they can use hedging techniques for cross border transactions and make
use of derivatives to be most effective (Muneer, Ahmad and Ali, 2017). A variety of
tactics or methods are present in outside world to ascertain risk and the most effective
and common techniques are standard deviation and measuring dispersion.
 Cash is King refers to and slang used which reflects that money is the most valuable and
commonly used tool for investment. This statement is used by investors when in
securities market prices are high and they plan to save money for future when prices go
cheaper. Moreover, this slang is also used for balance sheets and cash flow when,
company has cash in hand, which is a positive feature showing that the entity is flexible
enough, holding high liquidity. Financial management tool assess company's financial
manager to effectively manage their extra funds, enabling them to take appropriate
investment decisions for increasing their profitability and financial asset. The investors
supporting this phenomena always buys short term debts rather than high priced
securities for maintaining their liquidity ratio and being flexible enough. It also, refer t
 Incremental Cash flow count is the additional cash company gets before commencing a
new project. The balance of incremental cash flow is positive reflects that the company
will earn profits and their cash flow will increase with their acceptance of particular
project. Incremental cash flow is positive will also indicates that the project is beneficial
and company should invest in it for earning better cash and being more productive. It is a
tool which helps organisations to assess the productivity and profitability which a
assignment will render to the company or parties invested in it (Penner, 2016)(Prawitz
and Cohart, 2016). Various elements such as terminal cost or timing of the project,
should be looked over and identified by the investor while planning to use incremental
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cash flow as their resource for determining the projects profits units which are favourable
to entity
 The Agency problem refers to conflicts which are developed amongst two business
parties, where one was planning to or expected to act in favour of other party. In financial
terms the agency problem generally refers to the conflicts which arises between the
management of company and all the stockholders of the respective organisation. The
management of entity act as agents for the shareholders of the company its their job or
duty to act in favour of them and work for increasing shareholders wealth. Managers are
responsible and suppose to take decisions that will results in best interest of shareholder.
Although it is in the best interest for management of company to act and think in their
personal favour in order to increase their own wealth's. The agency problem exists where
any relationship exist amongst the principle or stockholders and the company's agent.
Agency problem is common in fiduciary relationship such as relationship between
trustees and beneficiaries, shareholders and board members of company, or lawyer and
their clients. Agency problem also associate some cost with it which is considered as
internal cost as it is a result of conflicts or disagreement occurred amongst agents and
stakeholders.
 Ethical decisions are everywhere in finance reflected the need for making ethical
decisions in relation with the finances which company is investing and also cash which is
gathered and showing in balance sheet. Finances, funds or money is the most important
resource which needs to be managed properly by the management keeping their personal
agendas and motives aside. Ethical decisions taken in financial context will ensures the
growth and success of organisation and effective cash flow travels towards the company.
The more liquid cash available to the entity, the better decisions and investments can be
made and the financial position will be enhanced.
 Efficient Capital market is any marketplace in which securities are traded and new data
converts into money and prices. In other words efficient capital market is a place where
in formation is very quickly and rapidly reflected and with accuracy in share prices.
Capital market is defined a the common ground for investors to trade their securities and
place where companies and government can raise money and finances. The rapid changes
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in prices is occurred due to and in response of changes taking place in demand and supply
and develops fair prices at all times. The two main form of capital market is primary and
secondary. The primary market is defined as the place where securities are created and
sold for the first time by the government and companies. Secondary capital market is
dependent on the primary market, once securities are sold in marketplace they can be
resold and bought by other potential investors enjoying all rights associated with it and
accepting all risks. Secondary capital market is stated as a place where pre existing
securities are traded, transferring all rights and risks to new owners. Efficient capital
market is denoted as the place where accurate data is available at all times about the
securities which are present for purchase and sale.
QUESTION 7
Introduction
Tax is the compulsory amount which every organization has to pay which comes under
the criteria of tax liability. It is the expenses for the individual or corporates but it is revenue for
the nation or government is the authoritative body who manage all the tax value for the economic
or social growth (Rendon and Snider, 2019). This part include the calculation of tax liability of
Robbins Corporation and its importance in the economic developmental or social welfare.
1. Calculate tax liability of Robbins Corporation
Taxable Income = $ 601,500
Tax Calculations Tax rate Tax value
0 to $ 50,000 15% $ 7,500
$ 50,000 to $ 75,000 25% $ 6,250
$ 75,000 to $ 10,00,000 33% $ 173,745
Tax value = $ 7,500 + $ 6,250 + $ 173,745
= $ 187,495
Tax Calculations Amount
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Tax amount which required to pay $ 187,495
Add: 2 % Surcharge $ 3749.9
Total Tax value $ 191,244.9 or $ 191,245
Total taxable amount of Robbins Corporation is $ 601,500 and they have to pay total tax
around $ 191,245 which included 2 % surcharge.
2. Explain the importance of taxation in the economy and how it contributes in the society for its
welfare
Taxation help the economy to grow and contribute towards society for their development
and encourage them to perform well in the community as well as economy (Renz, 2016). Some
of the importance discussed below:
Generate revenue: One of the essential requirement of taxation is to generate revenue
and further it is used by the government for their operations, infrastructure etc. Along with this,
government spend this amount for the welfare of society through improving education or defence
services which secure as well as protect the future of country. Through generating revenue with
the help of taxation contribute in the community to get the economic growth that is most
essential.
Reduce inequality: Tax money utilize by the government in order to provide basis or
necessary services to the weak people of the nation (Shapiro and Hanouna, 2019). They provide
free education, health care services, employment opportunities etc. In addition, they offer various
welfare program to develop individual or motivate them to do something.
Redistribution of resources: Taxation help the economy to distribute their resources
from one section to another section of society. It also contribute to satisfy individual needs and
desires which is beneficial for the growth of economy as well as entire community.
Protect local industry: Basically local industry protect by the government from import
tariff because it will make goods more expensive which reduce the overall demand which
automatically reduce the profit margin. It will encourage the local producers to manufacture or
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maximise their revenue and it will make than able to pay tax (Shoup, 2017). So basically,
protecting local industry helps in social welfare or maximise the growth of economic.
Above mention factors help the country to develop their nation or contribute in the
society for the development and encourage lower class people as well as local industries to push
their limits.
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