ACC00152 Business Finance

0 Download4 Pages / 823 Words

Course Code: ACC00152
University: Southern Cross University
Country: Australia

Questions:

Savanah has outlined the following three areas you need to cover in your memo:
1. Analyse base case figures for the three options and using NPV as the investment decision rule;
2. Provide recommendations based on the base-case analyses;
3. Provide recommendations on further analyses and factors that should be considered prior to making a final decision on the three options (Note. You do NOT have to undertake any further financial analyses).

Answer:

Memo

Savanah Harley

Chief financial officer

Space Sky Flight Ltd (SSF)

Subject: Evaluation of three investment options by considering Net present value investment appraisal tool to recommend suitable option.

Net present value

For the present analysis NPV is selected because this tool shows computation that makes comparison of the invested amount to the present value of receipts of future cash flows from the investment. The amount that is invested is contrasted with the amounts of future cash after the deduction of discount by a given rate. It is an evaluation of profit computed by deducting the present value of cash outflows inclusive of initial costs from the cash inflows of prevents value over the time. Decision rule:

NPV must be positive and comparatively higher than available options

Decision table[1]

Investment option	Net present value of project	Option to be selected
Option A	$59.89 million	Option C should be selected as it has highest NPV.
Option B	$72.43 million
Option C	$79.7 million

Option C is also beneficial because merely patent rights are sold to other Aero Jett Ltd in future if company believes that they can produced at lower cost and to earn higher benefits then they can relinquish the rights.

From

Finance department

Space Sky Flight Ltd (SSF) Date 11-May-2018

Supporting analysis

NPV of option 1

	Statement showing Cash Inflows if product is manufactured in house and sold directly to the market
						(In$)
	Particulars	Year 1	Year 2	Year 3	Year 4	Year 5

	Sales Price/ Unit of the Product	110000	70000	70000	70000	50000.00
	(-)Variable Cost/ Unit of the Product	35000	35000	35000	35000	35000.00

A	Contribution/ Unit of the Product	75000	35000	35000	35000	15000.00
	Total Production during the years (Units)	4000	3500	5500	3000	1500.00

	Total Contribution	300000000	122500000	192500000	105000000	22500000
B	Total Contribution (in Millions)	300.00	122.50	192.50	105.00	22.50

	Fixed Production Cost	11.50	11.50	11.50	11.50	11.50
	Fixed Marketing Cost	9.50	9.50	9.50	9.50	9.50
	Depreciation (Working Note 1)	44.00	44.00	44.00	44.00	44.00
	Opportunity Cost of Rent foregone	7.50	7.50	7.50	7.50	7.50

C	Cash Flows before tax	227.50	50.00	120.00	32.50	-50.00
D	Tax @ 30%	68.25	15.00	36.00	9.75	0.00
E	Cash Flows After Tax	159.25	35.00	84.00	22.75	-50.00
	Add: Depreciation For the Year	44.00	44.00	44.00	44.00	44.00

F	Net Cash Inflows for the Years	203.25	79.00	128.00	66.75	-6.00
G	Discounting Factor @ 16%	0.86	0.74	0.64	0.55	0.48

H	Present Value of Cash Flows	175.22	58.71	82.00	36.87	-2.86

Statement showing Total Cash Inflows during the entire life of the Project
	Particulars	Amount (In Million)

A	Total Present Value of Cash Inflows	349.94
B	Salvage Value of Equipment at the end of the Project	55.00
C	Investment in Net working Capital	79.70
D	Discounting Factor at the end of 5th Year	0.48
E	Present Value of Salvage Value and Investment in Net Working Capital at the end of the Project	64.66

F	Total Present Value of Cash Inflows	414.59

Statement Showing Initial Outlay of the Project if product is manufactured in house and sold directly into the market
	Particulars	Amount (In Million $)
A	Cost of the Equipment	275
B	Investment in Working Capital (Working Note 2)	79.7

C	Total Initial Outlay of the Project	354.7
Statement showing NPV of the Project
		Amount (In Million$ )
A	Present Value of Cash Inflows over the Period of Project	414.59

B	Initial Outlay of the Project	354.7
C	Net Present Value	59.89

Notes

Cost of plan and demand analysis is sunk cost in option A.

NPV of option 2

Statement showing Cash Inflows if product is manufactured by Aero Jett Inc.
						(In$)
	Particulars	Year 1	Year 2	Year 3	Year 4	Year 5
A	Sales Volume (In Units)	4200	3675	5775	3150	1575
B	Royalty/ Product	8250	8250	8250	8250	8250
C	Total Royalty	34650000	30318750	47643750	25987500	12993750
D	Total Royalty (In Millions)	34.65	30.32	47.64	25.99	12.99
E	Tax @ 30%	10.40	9.10	14.29	7.80	3.90
F	Cash Flows after tax	24.26	21.22	33.35	18.19	9.10
G	Discounting Factor @ 16%	0.86	0.74	0.64	0.55	0.48
H
E	Present Value of Royalty	20.91	15.77	21.37	10.05	4.33
F	Total Net Present Value of Royalty	72.43

NPV of option 3

Statement showing Cash Inflows if Patent Rights are sold to Aero Jett Inc.

	Particulars	Year 0	Year 1	Year 2
A	Patent Fees	40	40	40
B	Tax @ 30%	12	12	12
C	Patent Fees after tax	28	28	28
D	Discounting Factor @16%	1	0.86	0.74
E	Present Value of Patent Fees	28	24.08	20.72
F	Total Net Present Value If Patent Rights are sold	72.8

Working note

Working Note 1
Computation of Depreciation
	(In Millions)
Particulars	Amount
Cost of the Equipment	275
Salvage Value at the end of the Project	55
Net Cost of the Equipment	220
Rate of Depreciation	20%
Depreciation/ Annum	44

Working Note 2
Computation of Net Working Capital

Particulars	Sales	Amount	Amount In Million
Account Receivable (25% of Sales)	440000000	110000000	110
Less: Account Payable (20% of Production Overhead and Variable Cost)	151500000	30300000	30.3

Net Investment in Working Capital			79.7

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2020). Business Finance. Retrieved from https://myassignmenthelp.com/free-samples/acc00152-business-finance/present-value.html.

"Business Finance." My Assignment Help, 2020, https://myassignmenthelp.com/free-samples/acc00152-business-finance/present-value.html.

My Assignment Help (2020) Business Finance [Online]. Available from: https://myassignmenthelp.com/free-samples/acc00152-business-finance/present-value.html
[Accessed 26 July 2021].

My Assignment Help. 'Business Finance' (My Assignment Help, 2020) <https://myassignmenthelp.com/free-samples/acc00152-business-finance/present-value.html> accessed 26 July 2021.

My Assignment Help. Business Finance [Internet]. My Assignment Help. 2020 [cited 26 July 2021]. Available from: https://myassignmenthelp.com/free-samples/acc00152-business-finance/present-value.html.

Latest Management Samples

MBA503 Final Project Guidelines And Rubric

Download : 0 | Pages : 4

Course Code: MBA503
University: Southern New Hampshire University
Country: United States

Answer: Milestone three: Financial statement of the company is prepared to evaluate the financial performance as well as financial position during the accounting period. In order to prepare the financial statement companies are required to follow the requirements of accounting principles and standards as per “generally accepted accounting principles (GAAP)”. As per the regulations provided under GAAP, companies are required to pr...

HOS203A Food And Beverage Management

Download : 0 | Pages : 6

Course Code: HOS203A
University: Laureate International Universities
Country: United States

Answer: Introduction The use of social enterprises is a new idea that consumers currently need to adapt to. Looking into the case provided by the consultants, we are engulfed in the situation of Sally Irwin who happens to have been working in the social enterprise space for a long time. Even though the level of her expertise alongside professional experience has been the key towards her rise to a senior position in the same field, it is her p...

Y508 Human Resource Management

Download : 0 | Pages : 5

Course Code: Y508
University: Walsall College
Country: United Kingdom

Answer: Introduction The aim of this report is appreciating and applying the principles present in effective Human Resource Management (HRM). The lifeblood of any organization are its people and the ability of attracting, recruiting and retaining talented staff as a core of all HR activities. This report would be exploring the techniques and tools that are used in HRM for maximizing the employee contributions and the ways of using HR methods ...

Read More

BPS 6311 Strategy Implementation

Download : 0 | Pages : 4

Course Code: BPS6311
University: The University Of Texas At Dallas
Country: United States

Answer: Internal Environment Internal Structure Google effectiveness and success is linked to the cultural up gradation and organizational reformation of the structure. The company structure is not conventional and this is the reason direct social link cannot affect the internal programs as well. On the other hand, the business expansion of the company creates higher chances of success. Google has maintained a cross-functional organization ...

MGMT 350 Business Management Internship

Download : 0 | Pages : 8

Course Code: MGMT350
University: Azusa Pacific University
Country: United States

Answer: 1. Chick-fil-A: their business philosophy and corporate strategy The history of Chick-fil-A dates back to as early as 1946. At present, it is the second-largest chicken eatery in the United States of America. It was initially started as a restaurant named Dwarf House and now has over 1700 outlets in the United States alone. Their business philosophy is that of giving –– they believe that at their company, everybody&rs...

We Can Help!

Are you confident that you will achieve the grade?
Our best Expert will help you improve your grade

Refer & earn

Just refer 5 friends to earn more than $2000.

Assignment: 4.8 Pages, Deadline: 5 days

My Assignment was done very good. Good work and it was delivered on time. Very responsive.

User ID: 4***34 United States

18 Jul 2021

HRM

Thesis: 6 Pages, Deadline: 9 days

YOU WORKED HARD ON THIS ASSIGNMENT AND DID EXACTLY WHAT WAS ASKED. THANKS, AND I CAN'T WAIT FOR YOU TO DO WELL ON THE NEXT WORK.

User ID: 4***64 United States

Order Now All Reviews

ACC00152 Business Finance

Questions:

Answer:

Memo

Supporting analysis

NPV of option 1

NPV of option 2

Cite This Work

Latest Management Samples

MBA503 Final Project Guidelines And Rubric

HOS203A Food And Beverage Management

Y508 Human Resource Management

BPS 6311 Strategy Implementation

MGMT 350 Business Management Internship

We Can Help!

Related Samples to Management

Related Samples to Southern Cross University

Free tools

Refer & earn

Still in Two Minds? The Proof is in Numbers!

Mechanical Engineering

Healthcare

English

Assignment

Networking

It Write Up

Healthcare

Nursing

Nursing

HRM

Mechanical Engineering

Healthcare

English

Assignment

Networking

It Write Up

Healthcare

Nursing

Nursing

HRM

Order on the go!

Business Intelligence

Have any Query?

Have any Query?

Contact with us