Financial Management Project

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Added on 2020-11-23

Financial Management Project

Added on 2020-11-23

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FINANCIAL MANAGEMENT WRITTENPROJECT

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK...............................................................................................................................................11. Costs which have relevance or not for evaluation of project.............................................12. Analysis of Possible Opportunity and Cannibalization costs.............................................23. Method of Depreciation......................................................................................................24. Estimation of Cash Flows for Evaluation of Project..........................................................35. Estimation of Pack Period of Capital Investment...............................................................46. Calculation of Net Present Value.......................................................................................47. Sensitivity analysis on given points-:.................................................................................48. Advising AME’s Management...........................................................................................5CONCLUSION................................................................................................................................6REFERENCES................................................................................................................................7APPENDIX......................................................................................................................................81..............................................................................................................................................82..............................................................................................................................................93..............................................................................................................................................94............................................................................................................................................105............................................................................................................................................12

INTRODUCTIONFinancial management can be defined as the preparation, direction and management of monetary activities of any companysuch as buying, selling and using cash for best results and maximizing wealth to produce best value of money (Harrison, 2017). It canalso be defined as management of finance in order to achieve financial objectives (DeFusco, 2015.). The report will providerecommendations that will help in decision making to AME's Management.TASK1. Costs which have relevance or not for evaluation of projectCost is the value of money that is used to manufacture something or to deliver a service (Gitman, 2015). It also refers tomonetary expenditure which firm incurs in order to purchase or to hire factors of production. The given below are cost which helps in decision making.Opportunity Cost-: It is cost of next best alternative that is sacrificed for pursuing the chosen action.Sunk Cost-: These can be said as irrevocable cost of past business which has to be incurred and is irrelevant to currentbusiness activity (Daunfeldt, 2014).Replacement Cost-: Cost that are incurred for replacement of any asset. For Ex-: Setup of roofing for installing machinery.Conversion Cost-: Cost that are involved in Transformation of raw material in finished goods.Costs On the Basis of Nature-:1.Fixed Cost-: These are cost of fixed inputs that are used in production. This does not vary with the change in volume ofproduction.2.Variable Costs-: It can be said as cost of variable inputs used in production. These varies with change in volume ofproduction.So, in the given case cost that are relevant for evaluation of project are-:1

Annual Maintenance Cost-: These are incurred yearly for repairs of buildings lot and will be taken intoconsideration as it directly affects cost of project.Loss in cash flow of AME's regular business-: These are opportunity costs as because of new activity the regularbusiness is affected and there is loss of cash inflowMarketing Cost-: These are operation costs of business which are to be considered for evaluation of the Net presentvalue of project.Fixed Cost-: These costs are fixed that are compulsorily needed to run business.Variable Cost-: They are directly associated with the volume of business,Depreciation-: It is a non-cash expense but need to be considered in giving investment decision as it affects the costof project.2. Analysis of Possible Opportunity and Cannibalization costsCannibalization Costs-: It refers to reduction in sales volume, revenue or market share of one articleas a result of introductionof another product by same manufacturer (Andor, 2015).Opportunity Cost-: It is loss of profit when one alternative is selected over another.So in given case opportunity and cannibalization cost is loss of AME's regular car rental business where there is fall in cash flow of$20000 per annum.3. Method of DepreciationRefer appendix 1The methods that can be used for calculating depreciation Prime Cost Method-: This method assumes that value of depreciating asset decreases uniformly over its useful life.Diminishing Value Method-: It assumes that value of asset decreases more in early years of its effective life.2

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