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Financial Management Assignment | Capital Budgeting & Financial Analysis

   

Added on  2020-03-16

20 Pages4184 Words205 Views
Running Head: Financial Management Capital Budgeting & Financial Analysis
Financial Management Assignment | Capital Budgeting & Financial Analysis_1
Financial Management 1Executive summary:In the first part of report the two projects investments are analysed on the basis of their net present values, payback periods and the average annual rate of return. From the results of those capital budgeting techniques project B is considered as the appropriate investment proposal due to the fact that it is providing higher returns and keeps the ability to recover its invested amounts in the shorter time than the project A. In the second part various elements of financial statements have been calculated using certain financial formulas. Using those calculated amounts the extract for the next year is drawn. In the third part, critical analysis of financial performance of Jaguar Land Rover is made using ratio analysis approach which proved that in company needs to improve its performance in certain areas and in some financial areas it is currently performing well. In the last part of the report, the budgeting process and its importance is discussed as budgets are necessary for financial planning and therefore participation from all the levels of management is necessary to make the best use of budgeting practices.
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Financial Management 2Solution 1:It is assumed salvage value received in 5th year is not included in 5th year cash inflows, hence treated separately.Year PVF @ 16%PROJECTACash-flows Cumulativevalue PV ofcash flowsPROJECT BCash-flowsCumulativeValuePV of cashflows01.000 -250,000 -250,000-250,000 -260,000 -260,000 -260,00010.862 90,000 -160,000 77,586.21 120,000 -140,000 103,448.28 20.743 80,000 - 80,000 59,453.03 90,000 -50,000 66,884.66 30.641 75,000 -5,000 48,049.33 80,000 30,000 51,252.61 40.552 60,000 55,000 33,137.47 50,000 80,000 27,614.55 50.476 55,000 110,000 26,186.22 50,000 130,000 23,805.65 5 0.47610,000 120,0004,761.1325,000 155,00011,902.83NPV £-826.62 £ 24,908.58a) PAYBACK PERIODa) =3 + 5,000 =3.08YearsProject A55,000 – (5,000)b)=2 + 50,000 =2.63YearsPROJECT B30,000-(50,000)
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Financial Management 3 b) ANNUAL AVERAGE RATE (Gotze, Northcott & Schuster, 2016).ARR= Average Net Income after Taxes Average InvestmentsPROJECT AAverage Net Income = Net Income of year 1-5 = 370,000=74,000 Number of years 5 = Average Investment of Project A = 10,000+1/2 (250,000-10,000) = £ 130,000ARR = 74,000 x 100 130,000 = 56.92%PROJECT BAverage Net Income = Net Income of all the years = £ 415,000= £ 83,000 Number of years 5Average Investment of Project B =25,000 + 1/2(260,000-25,000) = 1, 42,500 ARR = 83,000 x 100£ 142,500 = 58.45%
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