Detailed Financial Analysis and Cash Flow Management Assignment

This finance assignment delves into various aspects of financial analysis and management. It begins with calculations on share prices and the value of rights offers, then proceeds to working capital management, including inventory reduction and receivables incentives. The assignment explores capital budgeting techniques such as Net Present Value (NPV) and Internal Rate of Return (IRR), and cash flow analysis through cash budgets and cash flow statements. Additional topics include overhead recovery rates, make-or-buy decisions, balance scorecard and detailed cash flow projections. The assignment provides step-by-step solutions and calculations to illustrate key financial concepts and decision-making processes.

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

1FINANCE
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................2
Question 3........................................................................................................................................4
Question 4........................................................................................................................................4
Question 5........................................................................................................................................5
Question 6........................................................................................................................................6
Question 7........................................................................................................................................8
Question 8........................................................................................................................................9
Question 9......................................................................................................................................11
Question 10....................................................................................................................................12
References......................................................................................................................................14

2FINANCE
Question 1
a) The price of the share following the rights issue would be as follows:
Purple Ltd
Outstanding Ordinary Shares 10,000,000
Issue Price 0.8
Current Share Price $1.60
Rights Share Offer 1:8
Price for Rights Share $1.50
Total Stock Outstanding After Rights Share 11,250,000
Market Cap before Share Issuance $16,000,000
Effect of Additional Share Issued 1,875,000
Total Market Cap After Rights Share Issuance $17,875,000
Total Stock Outstanding After Rights Share 11250000
Share Price After Rights Issue $1.589
b) The value of right offer on a per share basis would be
Question 2
2.1 ) The annual percentage of discount foregone if Flash Enterprises does not take up the
discount offer would be around 14.90% and the same can be calculated with the help of
discount offered and the annual discount percentage.

3FINANCE
Annual Percentage Discount Offer
Discount Percentage 2%
Discount Percentage 98%
Days in Year 365
Number of Days between Early Payment and Normal Payment 50
Annual Discount Percentage
14.90
%
2.2) Effective Cash flow Management is a key to business success. The operating working
capital requirement for a company needs to be kept as low as possible and the same
can also be kept in negative value in order to increase or improve the cash position.
The ways in which working capital can be reduced would be as follows:
 Reducing the stock or inventory levels as the goal is to sell out the inventory
levels to minimum amount of quantity in order to pay out the suppliers.
 Incentivizing the receivables can also be one of the key approach that the
company can follow in order to manage the working capital of the company.
2.3) Average Accounts Receivable Balance for the company would be around $4,500,000
and the same was taken by multiplying the daily sales with 365 days multiplied by the
average collection period that is 45 days of time period.
2.4) The internal rate of return for the cash flows of company can be computed as follows:
Question 2.4
Particulars Cash Flows
New Equipment Cash Outflows ($150,000)
Cash Inflows (Year 1) 35000
Cash Inflows (Year 2) 35000
Cash Inflows (Year 3) 35000
Cash Inflows (Year 4) 35000
Cash Inflows (Year 5) 35000
Internal Rate of Return (IRR) 5.37%

4FINANCE
2.5) The net present value of the project was calculated to be $1000 with a discount rate of
8% stating that the internal rate of return is comparatively much larger for the project
that is taken into consideration. The specified Internal Rate of Return can be high
specifically greater than 8% implying higher state of returns for the project.
Question 3
a) Net Present Value Analysis
Net Present Value
Particulars Year Project A Discount Rate Project B Discoun
t Rate Project C Discoun
t Rate
Initial cash outlay ($40,000) 1.00 ($40,000) 1.00 ($40,000) 1.00
Net Cash Inflows Year 1 3,000 0.91 16,000 0.91 12,000 0.91
2 7,000 0.83 13,000 0.83 12,000 0.83
3 11,000 0.75 10,000 0.75 12,000 0.75
4 15,000 0.68 7,000 0.68 12,000 0.68
5 19,000 0.62 4,000 0.62 12,000 0.62
Salvage value Year 8,000 0 2,000
Net Present Value @10% $10,989.43 $1,583.50 $11,280.23
Question 4
4.1)
a) Net Present Value is calculated to be $21,661.37.
b) Payback Period is calculated to be 4.40 years.

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Net Present Value
Particulars Year Project A Discount
Rate
Amount
Recovered
Time
Taken
Initial cash outlay ($220,000) 1.00 ($220,000) 0
Net Cash Inflows Year 1 50,000 0.86 ($170,000) 1
2 50,000 0.74 ($120,000) 2
3 50,000 0.64 ($70,000) 3
4 50,000 0.55 ($20,000) 4
5 50,000 0.48 $30,000 0.40
6 50,000 0.41 $80,000
7 50,000 0.35 $130,000
8 50,000 0.31 $180,000
9 50,000 0.26 $230,000
10 50,000 0.23 $280,000
Net Present Value @10% $21,661.37
Payback
Period
(Year) 4.40
4.2) Cash Budget
Cash Budget
Particulars May June July
Cash Balance at Beginning of Period
3500
0 83000
12820
0
Cash Inflows
Cash Sales
4800
0 56000 64000
Receivables Collected 0 9000 13500
Total Cash Inflows
4800
0 65000 77500
Cash Outflows
Purchases 0 19800 29700
Operating Expenses 0 0 8000
Total Cash Outflows 0 19800 37700
Cash Surplus (Deficit)
4800
0 45200 39800
Cash Balance at the End of Period
8300
0
12820
0
16800
0

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Question 5
a) Schedule of Receipts of Accounts Receivable
Accounts Receivable
Particulars
Ma
y
Jun
e July
30% (Month of Sales)
253
5
273
0
292
5
40% (Month After Sale) 0
338
0
364
0
28% (2 Months After Sale) 0 0
236
6
Total Accounts Receivable
253
5
611
0
893
1
b) Cash Budget
Cash Budget
Particulars May June July
Cash Balance at Beginning of Period 5700 685 5195
Cash Inflows
Cash Sales 4550 4900 5250
Receivables Collected 2535 6110 8931
Asset Sales 0 7000 0
Total Cash Inflows 7085
1801
0
1418
1
Cash Outflows
Purchases 9400 8000
1000
0
Operating Expenses 2700 5500 4100
Total Cash Outflows
1210
0
1350
0
1410
0
Cash Surplus (Deficit)
-
5015 4510 81
Cash Balance at the End of Period 685 5195 5276
Question 6
6.1

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a) Overhead Recovery Rate
Answer to Q no.6.1(a)
Calculation Overhead Recovery Rate
overhead recovery rate=Total overhead/Total labor hours
i.e.20000/700+900
12.5
Therefore 12.5 is the overhead recovery rate per hour for the coming month
b) Monthly Overhead: For Job 1 would be $8750
Answer to Q No.6.1(b)
Overhead to be charged to each job will be overhead rate per hour x hours required for the job
therefore for job 1 overhead will be
700 x 12.5
8750
Monthly Overhead: For Job 2 would be $11250
For Job 2
900 x 12.5
11250
Q 6.2
a) Overhead Recovery Rate
Answer to Q no 6.2(a)
Overhead recovery rate will be total overhead cost/total direct labor cost
Therefore,2400+4000+10000+20000+12000/60000
0.806666667
i.e., Overhead Cost will be 80.6666667% of Direct Labor Cost
b) Quotation
Answer to Q no 6.2(b)

8FINANCE
Particulars Amt ($)
Quotation for the job
Direct material 9000
Direct labor 6000
Overhead 4840
total cost 19840
markup @ 12% of cost 2380.8
Quotation for the Job would be around
22220.
8
Question 7
7.1
a) The financial data presented by Aquarius Electronics reflects that the Internal
Manufacturing Cost is comparatively much more than the external acquisition price (on a
per unit) basis for the company. The total manufacturing costs that is paid by the
company is around $74 that is considered to be comparatively much more than the
external price which is priced at $54. The company on a net would be running a $20 loss.
Thus, it is advised that the company outsource the material from external supplier. If the
company purchases the material from external supplier than it would be incurring only
$71 (External Acquisition Price $51 + Fixed Manufacturing Overhead Costs $17).
b) The factors that needs to be taken into account is the fixed manufacturing overhead that
the company would be incurring for the purpose of with or without the operations. In
total if the goods are outsourced from an external supplier than the company would be
incurring about $71 (External Acquisition Price $51 + Fixed Manufacturing Overhead
Costs $17). The selling price of the materials and the associated variability in the selling
price are some of the key points that the company needs to consider for the purpose of
analysis.

9FINANCE
7.2)
a) If the fixed costs are not expected to change and if the Holiday Packages services are closed
saving around $40,000 then on a net consolidated basis the company would be earning a net
profit of $60,000 which is comparatively much lesser than the operation of holiday packages.
Thus, on an overall basis, the company should be operating the project as the company will be
earning an extra $20,000 for the net profitability side.
Cost Savings of $40,000
Particulars
Internationa
l Interstate Packages Total
Revenue 200000 200000 40000 440000
Variable costs 50000 60000 0 110000
Contribution 150,000 140,000 40,000 330000
Fixed costs 90000 90000 90,000 270000
Net Profit 60000 50000 -50000 60000
c) If the Holiday Package would be rented on a sublet basis that is currently occupied by the
Holiday Packages for a sum of $50,000 then also the company would earning a net profit
that is consistently less amounting to around $70,000.
Cost Savings of $50,000
Particulars International Interstate Packages Total
Revenue 200000 200000 50000 450000
Variable costs 50000 60000 0 110000
Contribution 150,000 140,000 50,000 340000
Fixed costs 90000 90000 90,000 270000
Net Profit 60000 50000 -40000 70000

10FINANCE
Question 8
8.1) Cash Flow Statement
Cash Flow From Financing Activities for Cameron Screensavers 31 Dec
2018
Particulars Amount
Proceeds from issue of common stock 110000
Issue of bonus shares 72000
Dividends paid -13000
Net cash flow from financing activities 169000
Note: It is assumed that the bonus shares are issued at the end of the
year.
8.2) Balance Scorecard is a management system that would be enabling the organizations in
clarifying their visions, strategy and then translating them into action. The balanced scorecard
approach would be providing a clear description as in what the companies would be measuring
in order to balance the financial perspective. The balance scorecard could be better used for
guiding and designing the performance reports and dashboards. The strategic management helps
in various sections and operations of the company for carefully monitoring and executing the
plans planned out. The key example of Balanced Scorecard from the view point of a jewelry
store can be as follows:

11FINANCE
Question 9
a) Cash Flow Statement for the year ended 31st December 2018.
a) Classified Statement of Cash Flows
Particulars
Amoun
t
Net Income 13480
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation expense 50200
Increase in accounts receivable -150
Increase in accounts payable 1900
Decrease in stock of Photo frame
supplies -1500
Cash Flow from Operating Activities 63930
Cash Flow from investing activities
Purchase of photo framing equipment -40900
Net cash flow from investments -40900
Cash flow from financing activities
Cash withdrawn by Emily -25000
Repayment of loan -3000
Decrease in current account balance -11500
Net cash flow from financing activities -39500