University Finance Assignment: Cost, Revenue, and NPV Analysis

This finance assignment report provides a step-by-step analysis of financial concepts. It begins by outlining the process for calculating annual production costs, considering both variable and fixed costs. The report then details how to calculate expected annual revenue based on demand and list price. Subsequently, it explains the process of determining net operating cash flow, including the addition of depreciation costs. The assignment then explains the calculation of Net Present Value (NPV), including determining the initial investment, time period, cash inflows/outflows, and discount rate. Finally, it explains how to determine whether an offer should be accepted by analyzing the results of these calculations. The assignment covers key financial metrics and their applications, offering practical insights into financial decision-making.

Running Head: FINANCE
FINANCE
Name of the student
Name of the University
Author’s Note

1FINANCE
Table of Contents
Answer to question (1)...............................................................................................................3
Answer to question (2)...............................................................................................................3
Answer to question (3)...............................................................................................................4

2FINANCE
Answer to question (1)
Step1: Calculate the annual production cost of the Unique Future (UF) plc
Annual Production cost =
(Number of units produced annually * Variable cost per unit) + Fixed cost
Step 2: Calculate the expected annual revenue of the Unique Future (UF) plc
Annual revenue = Demand or forecasted demand * list price of each unit.
Step 3: Find out the net operating cash flow
Net operating cash flow= Annual revenue – Annual production cost
Step 4: Add back the annual depreciation (SLM) cost (if it was assumed to be deducted)
Step 5: Carry forward the amount calculated in step 4 as opening balance or revenue
generated for the next years’ calculations.
Step 6: Repeat the same steps for calculating cash flows in the next upcoming years
Answer to question (2)
NPV = ⨊ (P/ (1+i) t) – C
Step 1: Determine the initial investment (cost of setting up) [denoted by “C”]
Step 2: Determine the time period denoted by “t”
Step 3: Determine cash inflow or outflow for each year (use the steps showed in question 1)
[denoted by “p”]
Step 4: Calculate the discounted rate by using cost of capital [denoted by “i”]
Step 5: Put the values in the formula and calculate the NPV

3FINANCE
Answer to question (3)
To understand whether the offer should be accepted analyse the values obtained in question 1
and question 2. If the value obtained by accepting the offer is more (in question 2), then the
offer is to be accepted.