Financial Analysis and Investment Decisions

Question 1
Year
Reve
nues
Materi
al and
Labour
Other
cash
expen
ses
Depre
ciation
Net
Profit Tax
NP
AT
De
pre
ciat
ion
PA
T
DC
F
@
12
% PV
1
$
120,0
00.00
$
68,000
.00
$
14,000
.00
$
10,000
.00
$
28,00
0.00
$
11,2
00.0
0
$
16,
80
0.0
0
$
10,
000
.00
$
26,
80
0.0
0
0.
89
3
$
23,
92
8.5
7
2
$
120,0
00.00
$
68,000
.00
$
14,000
.00
$
10,000
.00
$
28,00
0.00
$
11,2
00.0
0
$
16,
80
0.0
0
$
10,
000
.00
$
26,
80
0.0
0
0.
79
7
$
21,
36
4.8
0
3
$
120,0
00.00
$
68,000
.00
$
14,000
.00
$
10,000
.00
$
28,00
0.00
$
11,2
00.0
0
$
16,
80
0.0
0
$
10,
000
.00
$
26,
80
0.0
0
0.
71
2
$
19,
07
5.7
1
4
$
120,0
00.00
$
68,000
.00
$
14,000
.00
$
10,000
.00
$
28,00
0.00
$
11,2
00.0
0
$
16,
80
0.0
0
$
10,
000
.00
$
26,
80
0.0
0
0.
63
6
$
17,
03
1.8
8
5
$
120,0
00.00
$
68,000
.00
$
14,000
.00
$
10,000
.00
$
28,00
0.00
$
11,2
00.0
0
$
16,
80
0.0
0
$
10,
000
.00
$
26,
80
0.0
0
0.
56
7
$
15,
20
7.0
4
Initial Investment 0 Year
-$
50,000.00
Present Value of Cash
Inflows 1-5th Year
$
96,608.00
Present value Terminal
Cash Flow 5th Year
$
340.46
NPV
$
46,948.46
The company should purchase the saw as it will give the benefit to the company
in terms of positive net cash flow
Question 2
Selling Price per unit
$
100.00
Variable cost per unit $

65.00
Contribution per unit
$
35.00
Number of units (Millions) 40
Total Contribution (Millions)
$
1,400.00
Less: Fixed Cost ( Millions)
$
1,050.00
EBIT (Millions)
$
350.00
DOL Contribution Margin
Net Operating Income
$
1,400.00
$
350.00
DOL= 4
Question 3
Million
Debt 200
Preference Share Capital 2
Ordinary Shares 14
216
Cost of Equity
Rf+ Beta (Risk Premium- Risk free
rate)
Risk free rate 3%
Beta 1.1
Market Risk 10%
Cost of Equity 10.70%
Cost of preference share
capital
Annual dividend per share/ Market
price per share
1.20/20
6%
Cost of debt

Yield to Maturity C + ((F-P)/n)
(F+P)/2
Coupon Payment 45.00
Years to Maturity 30
P 1024.87
F 1000
44.171
1012.435
Semi Annual Bond Yield 4.36%
Annual Bond Yield 8.73%
After tax yield 6.11%
WACC
Proportion of Debt 0.93
Proportion of Preference
share capital 0.01
Proportion of Equity Share
Capital 0.06
100.00%
WACC 6.40%
Question 4
Discount
ing Rate
11.5
0%
Year DCF Cash Flows
PV of Cash
Flows
Cummulative
Cash Flows
0 1
-$
7,100,000.00
-$
7,100,000.00 -$ 7,100,000.00
1
0.89
7
$
1,775,000.00
$
1,591,928.25 -$ 5,325,000.00
2
0.80
4
$
1,775,000.00
$
1,427,738.34 -$ 3,550,000.00
3
0.72
1
$
1,775,000.00
$
1,280,482.82 -$ 1,775,000.00
4
0.64
7
$
1,775,000.00
$
1,148,415.08
$
-
5
0.58
0
$
1,775,000.00
$
1,029,968.68
$
1,775,000.00
6 0.52 $ $ $