Financial Management : Assignment

   

Added on  2021-06-15

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FINANCIALMANAGEMENTSTUDENT ID:[Pick the date]
Financial Management : Assignment_1
Question 1The key information related to the project is summarised below.Projected Revenue and CostTotal units of the device that is expected to be sold annually = 200,000Unit selling price = $ 10Hence, expected annual revenue = 200000*10 = $ 2 millionAdditionally, a fixed cost to the tune of $500,000 or $ 0.5 million would be incurred annuallydue to the project being undertaken.Initial InvestmentThis essentially refers to the investment at t=0.Initial investment in equipment = $ 5 millionInitial investment in land = 300,000 or $ 0.3 millionCurrent asset investment = $400,000 or $0.4 millionIt is noteworthy that all the current asset investment would be recovered at t=5 or the end ofthe project. Salvage ValueThe salvage value refers to the market value of the project assets at the end of the project i.e. at t=5 years considering that the useful life of the project in the given case is 5 years.Salvage value of equipment = $ 1.2 millionSalvage value of land = $ 0.5 millionDepreciationThe depreciation would be charged only on the equipment and during the duration of fiveyears the book value would be reduced to zero using straight line depreciation which wouldimply equal annual depreciation. No depreciation would be charged on the land (Northington,2015).
Financial Management : Assignment_2
Annual Depreciation of equipment = (5/5) = $ 1 millionCapital GainsIn the given case, capital gains would be taxed at 30%. Capital gains refer to the appreciation in price of the disposed assets compared to their book value.Capital gains on land = $ 0.5 million - $ 0.3million = $ 0.2 millionFurther, capital gains would be charged for the equipment also since owing to depreciation,the book value was reduced to zero. Hence, capital gains on equipment = $ 1,2 million -0 = $ 1,2 millionTherefore, total capital gains from the expected sale of land and equipment at the end of theproject = 0.2 + 1.2 = $ 1.4 millionConsidering the given tax rate, capital gains tax outflow at t=5 would be 0.3*1.4 million = $0.42 millionOther informationThe corporate tax rate is given as 30% while the applicable discount rate for the project is 12%.Also, it is noteworthy that the $200,000 cost on two year study would not be considered forNPV analysis as it a sunk cost since it has already been incurred and cannot be avoidedirrespective of the decision undertaken (Damodaran, 2015).The NPV computation for the proposed project is highlighted as follows (Petty et. al., 2015).
Financial Management : Assignment_3

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