FINANCIAL MANAGEMENT INTRODUCTION 3 MAIN BODY3 1. Interpretation, Analysis and Evaluation of Investment Project Options

FINANCIAL MANAGEMENT

Table of Contents
INTRODUCTION................................................................................................................................3
MAIN BODY.......................................................................................................................................3
1. Calculation and interpretation..........................................................................................................3
2. Analysis and evaluation of the investment project options..............................................................6
1. Recommendation regarding project to be undertaken by the company.......................................6
2. Justifications including evaluation of the investment appraisal techniques used in task 1.........7
3. Summary of factors to be considered and information needed prior to decision making
process.............................................................................................................................................8
3. Two sources of finance considered by the board of AYR Co. .........................................................9
1. Description of Equity and Debt...................................................................................................9
2. Explaining cost of each source of finance.................................................................................10
3. Analysing of effect of selection of the source of finance on AYR Co.’s weighted average cost
of capital........................................................................................................................................10
4. Assessing the impact of selection of finance on the shareholders and lenders of AYR Co.......11
CONCLUSION...................................................................................................................................11
REFERENCES...................................................................................................................................13

INTRODUCTION
The term financial management is concerned with the process of managing financial resources of
the business in an effective and efficient manner. The overall process of financial management is
related with planning, organising, controlling, analysing and monitoring resources of financial and
monetary nature which are crucial for attainment of business goals and objectives. It deals with all
types of ratios, portfolio management, dividend, capital etc. The present report is based on AYR Co.
which is dealing with two projects named as Aspire and Wolf. Both are of different nature but
capable of increasing the overall market share value of AYR Co. This report will define various
calculation such as Net Present Value, Payback Period, Internal Rate of Return etc. along with
proper interpretation. Also, on the basis of calculation which project is more viable and to be
considered by AYR Co. will be determined. Sources of finance taken into consideration by AYR Co.
and cost related to it will be described in this report.
MAIN BODY
1. Calculation and interpretation.
Project Aspire
Computation of cash inflows
Particulars (in $) / Year 0 1 2 3 4 5
Initial Investment -2250000
Working Capital -140000
Cash Inflows 650000 698750 751156 807493 868055
-Variable Costs -27000 -28823 -30768 -32845 -35062
-Depreciation -450000 -450000 -450000 -450000 -450000
+Capital Allowance 600000 390000 345000 300000 240000
Profit before tax 773000 609927.5 615388 624648 622993
-Tax -154600 -121985.5 -123078 -124930 -124599
Profit after Tax 618400 487942 492311 499718 498394
+Depreciation 450000 450000 450000 450000 450000
Profit after tax before
dep. 1068400 937942 942311 949718 948394
+Salvage Value 375000
+Working Capital 140000
Total Cash inflows -2390000 1068400 937942 942311 949718 1463394
Discounting Factor 0.909 0.826 0.751 0.683 0.621
Discounted Cash
Inflows 971273 775159 707972 648671 908653

Calculation of NPV
Particulars Figures (in $)
Discounted Cash Inflows 4011727
-Cash Outflows -2390000
Net Present Value 1621727
Computation of IRR
Initial Investment -2250000
Year Cash Inflows (in $)
1 1068400
2 937942
3 942311
4 949718
5 1463394
Internal Rate of Return 36.23%