Fundamentals of Finance

Fundamentals of Finance

Table of Contents
A. Annual incremental cash flows..................................................................................................3
B.......................................................................................................................................................3
C. Problems in investment appraisal techniques.............................................................................4
D. Recommendations.......................................................................................................................8

A. Annual incremental cash flows
Years
1 2 3 4 5 6
Revenue 25,000.00 26,500.00 28,090.00 29,775.40 31,561.92 33,455.64
Gross profit margin 2,500.00 2,650.00 2,809.00 2,977.54 3,156.19 3,345.56
Less: Operating expenses
Indirect operating
expenses 875.00 927.50 983.15 1,042.14 1,104.67 1,170.95
Indirect overhead 50.00 50.00 50.00 50.00 50.00 50.00
Interest charges 80.00 80.00 80.00 80.00 80.00 80.00
Net profit 1,495.00 1,592.50 1,695.85 1,805.40 1,921.53 2,044.62
Less: Corporate tax 284.05 302.58 322.21 343.03 365.09 388.48
Net profit after tax 1,210.95 1,289.93 1,373.64 1,462.37 1,556.44 1,656.14
Less: Net working capital
requirement 3,000.00
Add: Capital allowances 360.00 295.20 242.06 198.49 162.76 133.47
Add: Residual value 150.00
Cash flow (1,429.05) 1,585.13 1,615.70 1,660.87 1,719.20 1,939.61
Discounting factor 0.97561 0.95181 0.9286 0.90595 0.88385 0.9756
Cash flow after discount (1,429.05) 1,508.74 1,500.34 1,504.66 1,519.52 1,892.30
B.
PROJECT A PROJECT B (India)
NPV £4,496.52 £3,490
IRR 27.4% 31.70%