Analysis of Capital Structure and Financial Performance of ANZ Bank

Assessment 3
1

Part-A
Requirement-a
$ Million
Initial outlay (Machine cost) -7.5
Total -7.5
Year-1 Afterwards
Units sold 80000 10% Decrease
Price per unit ($) 300 8% Decrease
Cost of sales 40%
Gross margin 60%
Tax 30%
Depreciation
A. Cost of machine 7.4
B. Useful life-years 5
C. SLM Depreciation (A/B) 1.48
1 2 3 4 5
Units sold 80000 72000 64800 58320 52488
Price per unit ($) 300.00 276.00 253.92 233.61 214.92
Revenues 24.00 19.87 16.45 13.62 11.28
Costs of sales (40% of revenues) 9.60 7.95 6.58 5.45 4.51
Gross profit 14.40 11.92 9.87 8.17 6.77
Less: Depreciation 1.48 1.48 1.48 1.48 1.48
Less: Marketing cost allocated 0.29 0.26 0.24 0.21 0.19
Profit before tax 12.63 10.18 8.16 6.48 5.10
Less: Tax @30% 3.79 3.05 2.45 1.94 1.53
Profit after tax 8.84 7.13 5.71 4.54 3.57
Add: Depreciation 1.48 1.48 1.48 1.48 1.48
After-tax Cash flows 10.32 8.61 7.19 6.02 5.05
i) After-tax cash flows $ Million
2

Discounted rate = i
Cash flow time = t
Net cash flow = Rt
0 1 2 3 4 5
Initial outlay -7.5
After tax cash flows 10.32 8.61 7.19 6.02 5.05
PAF @25% 1.0000 0.8000 0.6400 0.5120 0.4096 0.3277
Present value (7.50) 8.26 5.51 3.68 2.46 1.65
NPV 14.06
ii) Net present value
0 1 2 3 4 5
Initial outlay -7.5
PV of cash flows 8.26 5.51 3.68 2.46 1.65
Cumulative 0.76 6.26 9.94 12.41 14.06
Payback period (Years) 0.91
iii) Payback Period
Discounted Payback Period = 0 year + 7.50
8.26 years=0.91 years
iv) Profitability index
A. Total PV of inflows 21.56
B. Total PV of outflows 7.50
C. Profitability index (A/B) 2.87
v)
Yes, it is a viable project. The project's NPV is positive $14.06 million. Further, the payback
period is also very low. The profitability index is very high. Thus, positive NPV, low payback
period and high profitability index shows that the project is financially viable.
3

Requirement-b (i)
$ Million
Initial outlay (Machine cost) -7.5
Total -7.5
Best case: units sold 1st year are 10% higher than base case
Year-1 Afterwards
Units sold (80000*110%) 88000 10% Decrease
Price per unit ($) 300 8% Decrease
Cost of sales 40%
Gross margin 60%
Tax 30%
Depreciation
A. Cost of machine 7.4
B. Useful life-years 5
C. SLM Depreciation (A/B) 1.48
1 2 3 4 5
Units sold 88000 79200 71280 64152 57736.8
Price per unit ($) 300.00 276.00 253.92 233.61 214.92
Revenues 26.40 21.86 18.10 14.99 12.41
Costs of sales (40% of revenues) 10.56 8.74 7.24 5.99 4.96
Gross profit 15.84 13.12 10.86 8.99 7.45
Less: Depreciation 1.48 1.48 1.48 1.48 1.48
Less: Maketing cost allocated 0.29 0.26 0.24 0.21 0.19
Profit before tax 14.07 11.37 9.14 7.30 5.77
Less: Tax @30% 4.22 3.41 2.74 2.19 1.73
Profit after tax 9.85 7.96 6.40 5.11 4.04
Add: Depreciation 1.48 1.48 1.48 1.48 1.48
After-tax Cash flows 11.33 9.44 7.88 6.59 5.52
i) After-tax cash flows $ Million
4