Investment Analysis and Limiting Factor Homework: Finance Module

This document provides solutions to a finance homework assignment. Question 2 focuses on investment analysis, calculating the Net Present Value (NPV) of an investment using discounted cash flow, and includes detailed working notes for each year's cash flow projections. Question 3 identifies the limiting factor in a production scenario, determining that labor hours are the constraint due to a shortage. The working notes detail the material, labor, and machine hour requirements for three products (R, S, and T), comparing them against available resources to identify shortages or excesses. The analysis considers maximum sales demand and resource constraints to determine the operational limitations.

Online exam

Question 2
Investment: 2000000
Year Cash flow PV factor
Discounted cash
flow
1 650000 0.89 578500
2 754000 0.8 603200
3 869360 0.71 617246
4 1125273.6 0.63 708922
2507868
NPV: Discounted cash Flow-Investment
=2507868-2000000
= 506878 Pounds
Working Notes-
year1 year2 year3 Year 4
Sales 1600000 1760000 1936000 2129600
Less: Production cost 500000 530000 561800 595508
Less:Advertising cost 160000 160000 160000 0
Less: Quality cost 240000 240000 240000 240000
Profit before tax and
depreciation 700000 830000 974200 1294092
Less: Depreciation 450000 450000 450000 450000
Profit before tax but after
depreciation 250000 380000 524200 844092
Less Tax 50000 76000 104840 168818
Profit after tax and depreciation 200000 304000 419360 675274
Add: Depreciation 450000 450000 450000 450000

Profit after tax but before
depreciation 650000 754000 869360 1125274
Question 3
Limiting factor:
The limiting factor is labour hour. This is so because needed labour hours are 139000 while
available labour hours are 100000. So there is shortage of 39000 hours.
Working Note:
For material
Description Product R Product S Product T Total
Direct material 4 5 3
Maximum sales demand 20000 25000 8000
Direct material require 80000 125000 24000 229000
Available material 229000
Shortage/excess -
For labour hours
Description Product R Product S Product T Total
Direct labour hour 2 3 3
Maximum sales demand 20000 25000 8000
Direct labour hour require 40000 75000 24000 139000
Available labour hours 100000
Shortage 39000
For machine hours
Description Product R Product S Product T Total
Machine hour per unit 4 3 2

Maximum sales demand 20000 25000 8000
Machine hour require 80000 75000 16000 171000
Available machine hours 200000
Excess 29000