Finance Report: Investment Analysis and Working Capital Management

This finance report provides a comprehensive analysis of investment opportunities, cash flow management, and working capital. Part A focuses on comparing investment options using the coefficient of variation, risk, and return metrics, and analyzing historical stock performance. Part B delves into creating investment and depreciation spreadsheets, calculating operating and terminal cash flows for a machine investment. Part C examines operating and cash conversion cycles, resource investment needs, and operational efficiency, including the impact of cash discounts on financial performance and providing recommendations for Linda Lemon. The report includes calculations, spreadsheets, and financial analyses to support its findings and recommendations, offering a practical perspective on financial decision-making.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors Note:

1FINANCE
Table of Contents
Part A:........................................................................................................................................2
1. Discussing which two shares would be a better investment opportunity if the overall
decision is made solely on CV:..................................................................................................2
2. Comparing average annual risk and return of each stocks and NZX50:................................2
3. Depicting the total returns of till date of the stocks chosen and NZX50 index for the seven
years:..........................................................................................................................................3
Part B:.........................................................................................................................................3
1. Create initial investment spreadsheet:....................................................................................3
2. Create depreciation spreadsheet:............................................................................................4
3. Calculating the operating cash flow:......................................................................................5
4. Calculating the terminal cash flow:........................................................................................6
Part C:.........................................................................................................................................6
1. Calculating operating cycle, cash conversion cycle, resource investment needs:.................6
2. Calculating industry standard of operating cycle, cash conversion cycle, resource
investment needs:.......................................................................................................................7
3. Calculating the operational efficiency:..................................................................................8
4a. Assuming the level of sales remains constant:.....................................................................8
4b. Depicting the level of firms annual revenues be reduced by as result of the discount:.......9
4c. Annual saving resulting from reduced investment from sales:............................................9
4d. Depicting annual savings of bad debt expenses:................................................................10
4e. Depicting whether the cash discount can be justified financially:.....................................10
5. Providing relevant recommendations:..................................................................................11
6. Reviewing key source short-term financing for Linda Lemon:...........................................11
Reference and Bibliography:....................................................................................................12

2FINANCE
Part A:
1. Discussing which two shares would be a better investment opportunity if the overall
decision is made solely on CV:
Particulars NZX50 WBC ANZ XRO MFT EBO
Coefficient of variation 0.76 6.14 3.75 1.76 0.80 0.90
Solely from coefficient of variation Mainfreight Limited (MFT) and EBOS Group
Limited (EBO) is mainly identified, as the most viable option, which could directly improve
the profitability of the investor. The overall coefficient of variation can be identified from the
above table, where only MFT and EBO have the lease coefficient of variation (Bodie, 2013).
2. Comparing average annual risk and return of each stocks and NZX50:
NZX50 WBC ANZ XRO MFT EBO
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
180.00%
The overall figure directly indicates that the higher return providing assets have the
highest risk involved in investment.

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3. Depicting the total returns of till date of the stocks chosen and NZX50 index for the
seven years:
NZX50 WBC ANZ XRO MFT EBO
0.00%
200.00%
400.00%
600.00%
800.00%
1000.00%
1200.00%
Total returns
Part B:
1. Create initial investment spreadsheet:
Present Machine Amount
Machine cost $ 110,000
Depreciation $ 22,000
Current value of machine $ 66,000
Sale value $ 80,000
Profit $ 14,000
Initial investment $ 66,000
Proposed machine Amount
Machine cost $ 150,000
Actual machinery cost $ 135,000

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Depreciation per year $ 27,000
accounts receivable $ 15,000
Inventory $ 19,000
Accounts payable $ 16,000
Increment in cash $ (18,000)
Initial investment $ 168,000
2. Create depreciation spreadsheet:
Present Machine
Year Book value at
start
Depreciation Accumulated
depreciation
Book value at
end
1 $ 66,000 $ 22,000 $ 66,000 $ 44,000
2 $ 44,000 $ 22,000 $ 88,000 $ 22,000
3 $ 22,000 $ 22,000 $ 110,000 $ -
Proposed machine
Year Book value at
start
Depreciation Accumulated
depreciation
Book value at
end
1 $ 135,000 $ 27,000 $ 27,000 $ 108,000
2 $ 108,000 $ 27,000 $ 54,000 $ 81,000
3 $ 81,000 $ 27,000 $ 81,000 $ 54,000
4 $ 54,000 $ 27,000 $ 108,000 $ 27,000
5 $ 27,000 $ 27,000 $ 135,000 $ -

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3. Calculating the operating cash flow:
Present Machine
Particulars 1 2 3 4 5
PBDIT $ 105,000 $ 105,000 $ 105,000 $ 105,000 $ 105,000
Depreciation $ 22,000 $ 22,000 $ 22,000 $ 22,000 $ 22,000
PBT $ 83,000 $ 83,000 $ 83,000 $ 83,000 $ 83,000
Tax $ 23,240 $ 23,240 $ 23,240 $ 23,240 $ 23,240
PAT $ 59,760 $ 59,760 $ 59,760 $ 59,760 $ 59,760
Total Cash flow $ 81,760 $ 81,760 $ 81,760 $ 81,760 $ 81,760
Proposed machine
Particulars 1 2 3 4 5
PBDIT $ 115,000 $ 120,000 $ 120,000 $ 120,000 $ 120,000
Depreciation per year $ 27,000 $ 27,000 $ 27,000 $ 27,000 $ 27,000
PBT $ 88,000 $ 93,000 $ 93,000 $ 93,000 $ 93,000
Tax $ 24,640 $ 26,040 $ 26,040 $ 26,040 $ 26,040
PAT $ 63,360 $ 66,960 $ 66,960 $ 66,960 $ 66,960
Operating cash inflows $ 90,360 $ 93,960 $ 93,960 $ 93,960 $ 93,960
4. Calculating the terminal cash flow:
Book value Accumulated Asset market Tax

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depreciation value
Present Machine 0 $ 110,000 $ 110,000 $ 80,000 $ 22,400
Proposed
machine
0 $ 135,000 $ 135,000 $ 32,000 $ 8,960
Particulars Present Machine Proposed machine
Proceeds from sale $ 80,000 $ 32,000
tax on gain $ (22,400) $ (8,960)
Recovery of NWC $ 18,000
Terminal cash flow $ 57,600 $ 41,040
Part C:
1. Calculating operating cycle, cash conversion cycle, resource investment needs:
Particulars Days
Average age of inventory 110
Average accounts receivable 75
Operating cycle 185
Particulars Days
Average age of inventory 110
Average accounts receivable 75
Average accounts payable 30

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Cash Conversion cycle 155
Particulars Value
Cost of operation $ 26,500,000
Cash Conversion cycle 155
Resource needed $ 11,253,424.66
2. Calculating industry standard of operating cycle, cash conversion cycle, resource
investment needs:
Particulars Days
Industry average age inventory 83
Industry average age accounts receivable 75
Industry operating cycle 158
Particulars Days
Industry operating cycle 158
Industry average age accounts payable 39
Industry cash conversion cycle 119
Particulars Value
Cost of operation $ 26,500,000
Industry cash conversion cycle 119
Industry resource needed $ 8,639,726.03

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3. Calculating the operational efficiency:
Particulars Amount
Industry resource needed $ 8,639,726.03
Resource needed $ 11,253,424.66
Cost of operational inefficiency $ 392,054.79
4a. Assuming the level of sales remains constant:
Particulars Value
Average accounts receivable 75
reduction in collection days 40%
Average collection period 3/10 net 60 45
Particulars Value
Average collection period 3/10 net 60 45
Industry average age inventory 83
Operating cycle 3/10 net 60 128
Particulars Value
Operating cycle 3/10 net 60 128
Industry average age accounts payable 39
Cash conversion cycle 3/10 net 60 89
Particulars Value

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Cash conversion cycle 3/10 net 60 89
Cost of operation $ 26,500,000
Resource needed 3/10 net 60 $ 6,461,643.84
Particulars Value
Industry resource needed $ 8,639,726.03
Resource needed 3/10 net 60 $ 6,461,643.84
Additional Savings $ 326,712.33
4b. Depicting the level of firms annual revenues be reduced by as result of the discount:
Particulars Value
Revenue $ 42,000,000.00
Discount 45%
Reduction in revenues $ 567,000.00
4c. Annual saving resulting from reduced investment from sales:
Particulars Value
Revenue $ 42,000,000
Variable % 80%
average collection period 45
Average investment in accounts receivables and annual savings $ 4,142,465.75
Particulars Value