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Managerial Finance Assignment Sample

   

Added on  2021-06-17

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Running head: MANAGERIAL FINANCEManagerial FinanceName of the Student:Name of the University:Author’s Note

MANAGERIAL FINANCE1Table of ContentsAnswer to Question 1......................................................................................................................2Answer to Question 2......................................................................................................................6Calculation of NPV, IRR and Payback Period for Project A and Project B...............................6Analysis of the Results................................................................................................................7Ranking of Projects......................................................................................................................8Reference.......................................................................................................................................10

MANAGERIAL FINANCE2Answer to Question 1As per the case study which is provided in the question, RWE Enterprise Pty ltd isengaged in manufacturing business which is located in Brisbane. The company is planning to setup a new plant which has an upfront cost of $ 3 million. The management of RWE Enterprisewants to decide whether the business should invest in the project or not. For the purpose oftaking an appropriate decision, the management has decided to conduct capital budgetinganalysis which would be including analysis of how much cash inflows would the project be ableto generate in the coming year (Rossi 2015). The necessary computation of the capital budgetinganalysis is shown in the table below:Particulars012345678910Initial Cost-$30,00,000Operating Cash Flow:After Tax Profit$7,00,000$7,00,000$7,00,000$7,00,000$7,00,000$7,00,000$7,00,000$7,00,000$7,00,000$7,00,000Add: Depreciation$2,80,000$2,80,000$2,80,000$2,80,000$2,80,000$2,80,000$2,80,000$2,80,000$2,80,000$2,80,000Less: Refurbishment Cost-$20,00,000Net Operating Cash Flow$9,80,000$9,80,000$9,80,000$9,80,000-$10,20,000$9,80,000$9,80,000$9,80,000$9,80,000$9,80,000After Tax Salvage Value$2,00,000Net Cash Flow-$30,00,000$9,80,000$9,80,000$9,80,000$9,80,000-$10,20,000$9,80,000$9,80,000$9,80,000$9,80,000$11,80,000Discount Rate10%10%10%10%10%10%10%10%10%10%10%Discounted Cash Flow-$30,00,000$8,90,909$8,09,917$7,36,289$6,69,353-$6,33,340$5,53,184$5,02,895$4,57,177$4,15,616$4,54,941Cumulative Cash Flow-$30,00,000-$20,20,000-$10,40,000-$60,000$9,20,000-$1,00,000$8,80,000$18,60,000$28,40,000$38,20,000$50,00,000Net Present Value$18,56,942Internal Rate of Return23.42%Profitability Index1.62Payback Period (in years)3.06YearsFigure 1: Table Showing Capital Budgeting Analysis)Source: (Created by the Author)As per the table which is shown above, the capital budgeting analysis is being conductedfor a period of 10 years. The initial investment for setting up the nee plant is estimated to be

MANAGERIAL FINANCE3around $ 30,00,000. As shown in the above table, the new plant will be adding $ 7,00,000 to theoperating profit before tax in the business. The above table also shows that at the end of fiveyears, the business needs to incur a refurbishment costs for the plant which costs the businessaround $ 20,00,000. At the end of 10 years, it is anticipated that the plant will have a salvagevalue of $ 2,00,000 which will be revenues for the business. The cash flows which is estimatedto be generated with the help of new plant is shown to be $ 9,80,000 for the first four yearsconstantly. Then there is a significant fall in the cash flows which is shown as negative in thefifth year as $ 10,20,000. This is mainly due to the refurbishment cost which was undertaken bythe business during the fifth years as per the estimates of the management. Thereafter at the endof the 10th year, the plant is estimated to generate a cash flow of $ 11,80,000 which is a bit higherdue to the realization of the salvage value of the plant which the business will selling at the endof the 10th year. For the purpose of better understanding of the cash inflows which is generatedby the new plant a graph demonstrating the changes in the cash inflows of the business is shownbelow:12345678910-$1,500,000-$1,000,000-$500,000$0$500,000$1,000,000$1,500,000Net Cash Flow

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