The investment appraisal technique is considered to play a vital role in the determining the best suitable possible investment of the company. the net present value and internal rate of the return ins considered to provide a clear and precise idea about the company key facts and figure related to the company as it helps to throw light on the key aspect and thus help to determine the company best and most suitable investment option for the company (Barr and McClellan, 2011). The company has two major proposals and thus helps to take effective measure to take the company into the next level which eventually helps the company to gain a leading advantage over their arch rival.
Device part project
From the overall investment option left in the two project and thus help to throw light on the company overall key aspect related to the project expense and revenue generation via sales which help to calculate and identify the best suitable for the company (Elliott and Elliott, 2008). The net present value of the company help to take the time value of the money as it determine
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and assess the company key facts and figure related to the project cost inflow and cost outflow over the period of the fie year. The mutually exclusive project which have same deadline which in these scenario is considered to be around five year. the two project which is related to the device part investment the company have consist of the two major option, on the basis of the Net present value determination it is very much clear and precise and thus help to throw light on the company key aspect about the two project related to the device part which are the company should invest in the new plant machinery as the scrap value of the company or the salvage value of the company will be off no use or the cost of the salvage value will be zero which will be eventually lead to the loss of the company (Epstein and Lee, 2011).
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On the basis of the analysis of the company which include the three system implementation named as system A, System B and System C in which given key cost are given which clearly mentioned the tenure of the system A, B and C along with cash inflow and cash outflow per year which eventually help to calculate the company key investment appraisal method such as internal rate and net present value of the company which eventually lead the company to determine the most suitable project option available with appropriate return (Fifield and Power, 2011). On the basis of the evaluation of the three system based on the net present value and internal rate return perfect calculation is identified and determine the system for the implementation purpose is suitable. From the overall evaluation it is clear that investment in system B will be most suitable as the net present value and internal rate of return.
From the evolution and analysis it is clear and precise that investment I the new conveyor system will be suitable and most cost effective investment for the company as the up gradation of the device part will incur more cost compared to the new conveyor system and thus help the company to invest less capital and thus earn more profit in return at the end of each fiscal year (Holton, 2012).
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In the year 2014, the ROA and ROE of Mantra Group was negative which shows that the performance of the company is not good. The cash flow pattern of the company also shows negative balance which means that cash outflow is more than the cash inflow. The company is not getting returns from its investment in the projects. Therefore, it can be concluded that the performance of the company is not good in the year 2014. The net present value shows the different between the cash outflow and cash inflow from the project (Kieso et al., 2010). The net present value of Mantra group shows that the performance of the project is poor and shows negative results. The appraisal technique such as NPPV is used in the capital budgeting in order to analyze and evaluate the profitability of the project or projected investment. The overall performance of the company is not good and shows negative outcomes. In event when the market become averse to the risk then the stock returns on the company will increase as because the inverts will demand high compensation for same risk. The reason behind that is because of the aversion to risk in the market and compensation should be offered by the organization of higher returns. The capital budgeting is the process to generate, analyze and evaluate the performance of the project as well as the company (Spiceland, Sepe and Nelson, 2011). The performance of the company is well and the investment decisions are significant because it evaluates the performance and imposes impact on the profitability as well as total value.
The working capital management ensures that the company is able to continue its business operations and it has sufficient fund available to satisfy the operational expenses and short term debt. The working capital management involves managing account receivable, account payable, inventories and cash (Stittle and Wearing, 2008). The working capital management of Mantra Group is efficient which led to the negative operating income and increase in operating expenses. Therefore, lack of the working capital makes difficult to perform its day and to day operations and therefore, the company may suffer losses. The working capital management of Mantra Group is not efficient and the company incurred operating loss. In the year 2013 and 2014, the operating income of Mantra Group is negative which shows inefficient working capital management (Warren, Reeve and Duchac, 2007).
Key Ratios -> Efficiency Ratios
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Days Sales Outstanding
Cash Conversion Cycle
Fixed Assets Turnover
The cash conversion cycle estimates the time length that the company takes to coverts its input resources into the cash flows. It looks at the time needed to sell the inventory and the time needed in order to collect the receivables and time needed to pay the bills to the suppliers (Warren, Reeve and Fess, 2005). The cash flow of Mantra group shows negative balance which means that the company is not efficient in converting its resources into liquid cash. The value of cash conversion cycle is also negative which shows poor performance. The Mantra group major competitor is Royal Sonestal Hotel and as per the financial statements the performance of Sonestal hotel is much better than Mantra group.
Credit risk is the financial loss or principle loss that arises due to increase in debt level and failure of payment of the borrowed amount. It arises when the company is expecting to use its cash flows in order to pay the debt amount (Wolf, 2008).
Telstra Corporation Limited
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The liquid ratio shows the credit risk of the Telstra Corporation Limited. The current ratio shows the ability of the company to pay off its obligations. The ratio is less than one and above 0.75 which means that the company would be able to pay off its obligations. The financial leverage of the company is above two which shows that the liabilities are much more than the assets. The debt equity level is one which is considerable figure for a company (Zopounidis, 2008). Overall the credit risk of the company is at medium level.
The asset financing policy of the company states that it is important for the management to take adequate steps in order to support the working capital management and paying off the short term obligations. The working capital management will help to operate day to day operations and meeting its short term obligations (Wolf, 2008). The policy will help the company to cope with the short term obligations in comparison to other alternative policies.