Business Analysis and Interpretation Assignment Solution ACC10707

This document presents a comprehensive solution to a finance assignment, addressing key aspects of business analysis and interpretation. The assignment includes a detailed cash budget for Garden Enterprises, projecting cash inflows and outflows over a three-month period. It further analyzes the business's break-even point under different sales mix scenarios, calculating the weighted average contribution margin and break-even units. Additionally, the assignment delves into investment appraisal techniques, calculating the net present value (NPV) and payback period for a given project. The NPV is computed at both 5% and 7% discount rates to evaluate the project's profitability, and the payback period determines the time required to recover the initial investment. The document also references academic literature to support the methodologies used. The solution provides a complete analysis of the given financial data and offers insights into making sound financial decisions.

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Accounting and finance

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Table of Contents
Question 1........................................................................................................................................3
Question 2........................................................................................................................................3
a)..................................................................................................................................................3
b)..................................................................................................................................................3
Question 3........................................................................................................................................4
a)..................................................................................................................................................4
b)..................................................................................................................................................4
c)..................................................................................................................................................5
d)..................................................................................................................................................5
References........................................................................................................................................6

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Question 1
Cash budget:
Particulars October Novembe
r
December
Opening balance 78010 174495 832020
Cash Sales 45000 47500 49000
Receipt of Loan 0 550000 0
Receipts from Accounts
Receivable
220000 244920 284020
Interest Received 2210 2305 2430
Receipts 345220 1019220 1167470
Wages 50000 50000 70000
Prepayments 0 0 9890
Office Furniture 16050 18950 0
Payments of Accounts
Payable
89675 103250 106950
Administrative Expense 15000 15000 15000
Payments 170725 187200 201840
Closing balance 174495 832020 965630
Question 2
a)
Particulars 1 year
old
2 year
old
3 year
old
Total
Sales mix 50000 35000 15000 100000
Sales mix % 0.5 0.35 0.15
Sale price 12 18 30
Variable cost 8 12 18
Contribution per unit 4 6 12
Weighted average contribution margin 5.9
Fixed cost 220500
Total break-even units 37373
Breakeven units 18686 13081 5606
b)
Particulars 1 year
old
2 year
old
3 year
old
Total

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Sales mix 40000 30000 30000 100000
Sale price 12 18 30
Variable cost 8 12 18
Contribution 4 6 12
Contribution in
Amount
160000 180000 360000 700000
Fixed cost 260500
Profit 439500
The business will be taking the initiative as there is the identification of the profits with the same.
Question 3
a)
Year Cash
flow
PVF @
5%
PV
1 62000 0.952381 59047.62
2 62000 0.907029 56235.83
3 57000 0.863838 49238.74
4 41900 0.822702 34471.23
5 68700 0.783526 53828.25
PV of inflows 252821.7
PV of outflows 191000
Net present
value
61821.67
b)
Year Cash
flow
PVF @
7%
PV
1 62000 0.934579 57943.93
2 62000 0.873439 54153.2
3 57000 0.816298 46528.98
4 41900 0.762895 31965.31
5 68700 0.712986 48982.15
PV of inflows 239573.6
PV of outflows 191000
Net present
value
48573.57
c)
The net present value has been used for the evaluation and that will be providing the company

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with the results to take decisions (Pasqual, Padilla and Jadotte, 2013). There are positive results
which are obtained and so the acceptance will be provided to the project.
d)
Year Cash
flow
Cumulative
cash flow
1 62000 62000
2 62000 124000
3 57000 181000
4 41900 222900
5 68700 291600
Payback period 3.24
The pay-back period which is ascertained is more than that of the expected (Al-Alawi and
Bradley, 2013). Due to this the project will not be undertaken as the more time will be taken to
recover the cost.

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References
Al-Alawi, B.M. and Bradley, T.H. (2013) Total cost of ownership, payback, and consumer
preference modeling of plug-in hybrid electric vehicles. Applied Energy, 103, pp.488-506.
Pasqual, J., Padilla, E. and Jadotte, E. (2013) Equivalence of different profitability criteria with
the net present value. International Journal of Production Economics, 142(1), pp.205-210.