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MASTERS OF PROFESSIONAL ACCOUNTING

   

Added on  2022-09-01

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Finance
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Running head: MASTERS OF PROFESSIONAL ACCOUNTING
Masters of Professional Accounting
Name of the Student:
Name of the University:
Author’s Note:
MASTERS OF    PROFESSIONAL ACCOUNTING_1

MASTERS OF PROFESSIONAL ACCOUNTING1
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................3
Question 3........................................................................................................................................4
Question 4........................................................................................................................................5
Question 5........................................................................................................................................6
Question 6........................................................................................................................................6
Question 7........................................................................................................................................7
Question 8........................................................................................................................................8
Question 9........................................................................................................................................8
References......................................................................................................................................10
MASTERS OF    PROFESSIONAL ACCOUNTING_2

MASTERS OF PROFESSIONAL ACCOUNTING2
Question 1
a) The after tax cash flows for the investment project evaluated are as follows:
Project Financial Analysis
Particulars Year 0 1 2 3 4
Initial Investment -56,000,000
Salvage Value 8,000,000
Working Capital Investment -1,500,000
Cash Inflows
Units Sold 5,000 5,750 6,613 7,604
Selling Price 12,000 12,600 13,230 13,892
Revenue/Cash Inflows 60,000,000 72,450,000 87,483,375 105,636,175
Less: Cash Outflows
Variable Cost 42,000,000 50,715,000 61,238,363 73,945,323
Fixed Costs 3,000,000 3,060,000 3,121,200 3,183,624
Depreciation 12,000,000 12,000,000 12,000,000 12,000,000
Total Cash Outflows 57,000,000 65,775,000 76,359,563 89,128,947
Cash Flow Before Tax -57,500,000 3,000,000 6,675,000 11,123,813 24,507,229
Taxation@30% 900,000 2,002,500 3,337,144 7,352,169
Cash Flow After Tax -57,500,000 2,100,000 4,672,500 7,786,669 17,155,060
Add: Non Cash (Depreciation) 12,000,000 12,000,000 12,000,000 12,000,000
Add: Working Cap. Investment 1,500,000
Free Cash Flows -57,500,000 14,100,000 16,672,500 19,786,669 30,655,060
Discount Factor@10% 1.00 0.91 0.83 0.75 0.68
Discounted Cash Flows -57,500,000 12,818,182 13,778,926 14,866,017 20,937,818
Net Present Value 4,900,943
Internal Rate of Return 3.09%
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MASTERS OF PROFESSIONAL ACCOUNTING3
b) In the project analyzed the payback period stands out to be around 3.23 years whereby the
payback period exceeds the criteria point of time and it is advisable that the project should not be
accepted based on the given set of criteria (Vartiainen et al., 2019).
c) The net present value that has been derived from the project has been around $4,900,943
stating that the project should be accepted.
d) The profitability index for the project is around $1.09 stating that for every single $1 invested
the project would be generating $1.09 for the shareholders of the company.
Question 2
The project investment analysis has been done by taking all the cash inflows and cash outflows
that the company will be experiencing with respect to the proposed project and the benefits that
would be flowing to the company. The key capital budgeting tools that have been used for the
analysis of the cash flows generated from the project is NPV, IRR, Payback Period and
Profitability Index El (Ghoul et al., 2018). The net present value that has been derived from the
project has been around $4,900,943 stating that the project should be accepted as the project
would be increasing the shareholders wealth by the stated answer. The project would be creating
an additional value in terms of shareholder’s wealth. Profitability Index for the project shows the
extra benefit that has been created by the project with the help or with the undertaken project on
every single dollar that has been invested by the company. The profitability index for the project
is around $1.09 stating that for every single $1 invested the project would be generating $1.09
for the shareholders of the company (Frank & Shen, 2016). Payback Period for the project shows
the amount of time that has been taken by the project for returning back the initial investment
amount. The analyzed project has a criteria of three years which states that the project’s payback
MASTERS OF    PROFESSIONAL ACCOUNTING_4

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