TFIN601 Business Finance Assignment - Semester 1, 2019

This assignment solution addresses a business finance problem, focusing on calculating the weighted average cost of capital (WACC) and performing a net present value (NPV) analysis. The solution provides a detailed calculation of the WACC for Australian Agricultural Project Ltd, considering the book value of loans and interest rates. It also explores an investment decision regarding the purchase of vehicles and related costs, including revenue projections, operating costs, and depreciation. The NPV analysis calculates the present value of future cash flows, incorporating a discount rate to determine the project's financial viability. The assignment also briefly discusses the opportunity to sublease a lot as an alternative revenue generation option for ACE. The document includes calculations, tables, and a bibliography of relevant sources.

Running head: BUSINESS FINANCE
Business Finance
Name of the Student:
Name of the University:
Author’s Note

1
BUSINESS FINANCE
Table of Contents
Answer to Part E..............................................................................................................................2
Answer to Question 3......................................................................................................................2
Requirement 8..............................................................................................................................3
Requirement 9 &10......................................................................................................................3
Bibliography....................................................................................................................................5

2
BUSINESS FINANCE
Answer to Part E
Weighted Average Cost of Capital
Particulars
Book
Value
Interest
Rate
Tax free rate of
Interest Total Cost
A B A*B
Current Loan and Borrowings 1042899 5.46% 3.82% 39859.6
Overdraft 474740 6.66% 4.66%
22132.37
9
Long Term Loan and
Borrowings 3394030 5.46% 3.82%
129719.8
3
Total 4911669
191711.8
1
Weighted Average Cost of
Debt 3.90%
The above figure shows computation of weighted average cost of debt for Australian
Agricultural Project ltd which is done considering book value of the loans. In case Market value
of the loans is to be taken, then the same would be a difficult task as market value is not easily
available but the same would be showing appropriate estimate in comparison to book value
estimate.
Answer to Question 3
Requirement 8
The opportunity to sublease the lot would provide an alternative option to ACE for
alternative revenue generation activity. The sublease option would be considered to be
appropriate in case the management of ACE estimate that the project would not be generating
appropriate revenue.

3
BUSINESS FINANCE
Requirement 9 &10
Years
Particular 0 1 2 3 4 5 6
Purchase of Vehicles 950000
LoJack Stolen Vehicle Recovery
System 100000
Working Capital 50000
Total investment
-
110000
0
Revenue 480000 480000 480000 480000 480000 480000
Operating Costs 100000 100000 100000 100000 100000 100000
Gross Profit 380000 380000 380000 380000 380000 380000
Maintennace Cost 20000 20000 20000 20000 20000 20000
Depreciation
158333
.3
158333
.3
158333
.3
158333
.3
158333
.3
158333
.3
Net Profit Before Tax
201666
.7
201666
.7
201666
.7
201666
.7
201666
.7
201666
.7
Tax
64533.
33
64533.
33
64533.
33
64533.
33
64533.
33
64533.
33
Net Profit
137133
.3
137133
.3
137133
.3
137133
.3
137133
.3
137133
.3
Add: Depreciation
158333
.3
158333
.3
158333
.3
158333
.3
158333
.3
158333
.3
FCFF
295466
.7
295466
.7
295466
.7
295466
.7
295466
.7
295466
.7
Net Cash Flow
-
110000
0
-
804533
-
509067
-
213600
81866.
67
377333
.3 672800
Discount Rate 12% 12% 12% 12% 12% 12% 12%
Discounted Cash Flow
-
110000
0
-
718333
-
405825
-
152036
52027.
75
214109
.1
340861
.4
Terminal Value
560666
7
NPV
-
176919
6
Net Cash Flow -1100000 -804533 -509067 -213600 81866.67 377333.3 672800

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BUSINESS FINANCE
Discounting Rate 14% 14% 14% 14% 14% 14% 14%
Discounted Cash Flow -1100000 -917168 -661583 -316458 138269.5 726523.1 1476778
NPV -653639

5
BUSINESS FINANCE
Bibliography
Crowley, D. and Li, S.M., 2016. An NPV analysis of buying versus renting for prospective
Australian first home buyers. Economic Record, 92(299), pp.606-630.
Kim, S., Lee, Y. and Moon, H.R., 2018. Siting criteria and feasibility analysis for PV power
generation projects using road facilities. Renewable and Sustainable Energy Reviews, 81,
pp.3061-3069.