Introduction to Accounting: Capital Budgeting and Master Budget

Running head: INTRODUCTION TO ACCOUNTING
Accounting
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INTRODUCTION TO ACCOUNTING1
Table of Contents
Part A...............................................................................................................................................2
Part B...............................................................................................................................................4
References........................................................................................................................................6

INTRODUCTION TO ACCOUNTING2
Part A
a) Capital Budgeting tools like Net Present Value and Internal Rate of Return helps a prospective
investor asses the effectiveness and usefulness of a project. The project considered for the
investment should be discounted using the Cost of Capital or the Weighted Average Cost of
Capital that stands out to be around 12.5%. The tax rate taken into consideration would be
around 30% and the same would be applied for the purpose of applying the relevant taxation
rate. The relevant cash inflows and cash flows were taken into consideration for the purpose of
financial analysis of the project were the sales and the additional sales that will be done will be
the possible ways for the cash inflow of the company (Warren, Liz and Lisa Jack). The expenses
that the company will be incurring will be sales and wages and overhead cost that will be
reported in the expenses section of the financial table. The profit after taxation for the company
would be taken for the purpose of the analysis of the company (Andor, Gyorgy, Sunil K.
Mohanty, and Tamas Toth). The relevant discount factor taken for the purpose of the discounting
the cash flows would be 12.5% the corresponding net present value of the financial project was
around -$98596 and the internal rate of return for the project on the other hand was around -4%.
The derived results from the financial project says that the project should not be accepted as the
same would not be creating wealth for the shareholders of the company (Hayward, Mathew,
Andrew Caldwell, John Steen, David Gow, and Peter Liesch).
b) The other factors that the company should be considering while evaluating the effectiveness of
the project would be the changes in the revenue of the company and the expenses of the
company associated with the project. The changes in cash flows can significantly affect the
overall profitability of the company and the dependent result that will be taken into consideration
for the purpose of analysis. Changes in the method of depreciation rise in the overhead expenses