Davidson Limited: Capital Budgeting Analysis and Master Budget

This assignment presents a comprehensive financial analysis for Davidson Limited, focusing on capital budgeting and master budgeting techniques. Part A of the assignment involves evaluating a new production line investment using capital budgeting tools such as Net Present Value (NPV) and Internal Rate of Return (IRR). The analysis considers cash inflows from sales and overtime savings, and expenses including labor, overhead, and depreciation. The results suggest that the project is not financially viable based on the calculated NPV and IRR. Part B focuses on the master budget, a central planning tool used by management. It outlines the steps involved in preparing a master budget, including forming a budget committee, analyzing long-term plans, preparing sales, production, and resource budgets, and finally creating cash flow and financial statement forecasts. The assignment highlights the importance of master budgeting in coordinating various departmental activities and providing a comprehensive financial plan for the company, emphasizing the need for detailed financial planning and the consideration of budgeted expenses and income across different departments.