Report on Finance - CQU printers Case Study

Added on - 28 May 2020

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Running Head: Finance1Project Report: Finance
Finance2ContentsIntroduction.......................................................................................................................3Part A................................................................................................................................4Initial investment..........................................................................................................4Operating cash inflows.................................................................................................5Terminal cash flow.......................................................................................................7Part B................................................................................................................................7Relevant cash flow stream:...........................................................................................7Part C................................................................................................................................9Payback period..............................................................................................................9Net present value........................................................................................................10Internal rate of return..................................................................................................11Past D..............................................................................................................................12Draw the graph...........................................................................................................12Part E..............................................................................................................................12Conflicting ranking of projects...................................................................................13Recommendation........................................................................................................13Part F...............................................................................................................................13Recommendation........................................................................................................13Conclusion......................................................................................................................14References.......................................................................................................................15
Finance3Introduction:This report has been prepared on a case study which explains about a company CQUprinters. This company is managing its operations through an old printer but the newmanaging director of the company has suggested to the company to make few changes intoits current machinery and replace the machineries with new printer. Further, in this report, thecash flows of new printers have been evaluated and it has been found that which proposal isthe best option for the company (Brown, Beekes & Verhoeven, 2011). Capital budgetingtechniques makes it easy for the companies to evaluate 1 or more investment proposal easily.Following is the exact case:Production units$50,000Old PrinterInstalled cost$4,00,000Life5YearsSales value after 3 years$4,20,000Sales value after 5 years$1,50,000Current book value$1,16,000New Printer (A)Installed cost$8,70,000Life5YearsSales value after 5 years$4,00,000Book value after 5 years$43,500New Printer (B)Installed cost$6,60,000Life5YearsSales value after 5 years$3,30,000Book value after 5 years$33,000
Finance4Tax rate30%Cost of capital14%Profit before depreciation and taxes for CQUprintersYearOld printerPrinter APrinterB11200002500002100002120000270000210000312000030000021000041200003300002100005120000370000210000Part A:In this part, the initial investment, operating cash inflows and terminal cash flows ofboth the projects have been calculated:Initial investment:The below table explain that the initial investment of printer A is $ 4,50,000 andinitial investment of project B is $ 2,40,000 which explain that the investment of printer B isquite lesser.Calculation of initial investmentNew Mach(A)New Mach(B)Installed cost$ 8,70,000$ 6,60,000Less: SellingPrice$ 4,20,000$ 4,20,000InitialInvestment$ 4,50,000$ 2,40,000(Atrill & McLaney, 2006)W.N:Calculation of current net profit
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