Financial Management: Capital Budgeting Analysis and Techniques

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

1FINANCIAL MANAGEMENT
Table of Contents
Capital Budgeting Analysis (Normal View):..................................................................................2
Capital Budgeting Analysis (Formula View):.................................................................................3
Report:.............................................................................................................................................4
References list:.................................................................................................................................5

2FINANCIAL MANAGEMENT
Capital Budgeting Analysis (Normal View):
Particulars 0 1 2 3 4 5
Initial Investment:
Development Cost -$7,80,000
Purchase of Machinery -$2,45,00,000
Working Capital -$29,00,000
Total Initial Investment -$2,81,80,000
Operational Cash Flow:
Price/Unit $250 $260 $270 $260 $250
Variable Cost/Unit $95 $95 $95 $95 $95
Volume (units) 61200 71200 85440 75500 70000
Sales Revenue $1,53,00,000 $1,85,12,000 $2,30,68,800 $1,96,30,000 $1,75,00,000
Variable Cost -$58,14,000 -$67,64,000 -$81,16,800 -$71,72,500 -$66,50,000
Fixed Costs -$25,00,000 -$25,00,000 -$25,00,000 -$25,00,000 -$25,00,000
Depreciation on Machinery -$35,00,000 -$35,00,000 -$35,00,000 -$35,00,000 -$35,00,000
Promotion & Advertising -$23,00,000
Net Profit Before Tax $11,86,000 $57,48,000 $89,52,000 $64,57,500 $48,50,000
Less: Income Tax -$3,55,800 -$17,24,400 -$26,85,600 -$19,37,250 -$14,55,000
Net Profit after Tax $8,30,200 $40,23,600 $62,66,400 $45,20,250 $33,95,000
Add: Depreciation on Machinery $35,00,000 $35,00,000 $35,00,000 $35,00,000 $35,00,000
Net Cash Flow from Operation $43,30,200 $75,23,600 $97,66,400 $80,20,250 $68,95,000
Salvage Value:
Sale of Machinery $49,00,000
Less: Tax on Sales $14,70,000
Net Receipts from Sales $34,30,000
Recovery of Working Capital $29,00,000
Total Salvage Value $63,30,000
Net Cash Flow -$2,81,80,000 $43,30,200 $75,23,600 $97,66,400 $80,20,250 $1,32,25,000
Required Rate of Return 12% 12% 12% 12% 12% 12%
Discounted Cash Flow -$2,81,80,000 $38,66,250 $59,97,768 $69,51,531 $50,97,014 $75,04,220
Cumulative Cash Flow -$2,81,80,000 -$2,38,49,800 -$1,63,26,200 -$65,59,800 $14,60,450 $1,46,85,450
Net Present Value $12,36,783
Payback Period (in years) 3.82
Profitability Index 1.044
Internal Rate of Return 13.51%
Years