Get Instant Help From 5000+ Experts For
question

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing:Proofread your work by experts and improve grade at Lowest cost

And Improve Your Grades
myassignmenthelp.com
loader
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Guaranteed Higher Grade!
Free Quote
wave
Question:

Prepare an excel spreadsheet calculating whether this product will satisfy the investment parameters set by Saturn Group global.

(i) Required:

For the proposed ‘Buddy’ capital investment calculate the following:

After-tax cash flows (3 marks).

Payback period (2 marks).

Net present value (3 marks).

Profitability index (2 marks).

Nathan Quinlivan advises you that he is concerned about the increasingly challenging business environment facing Saturn Petcare and would like to conduct some ‘what if’ analysis of the proposed ‘Buddy’ product line capital investment. Nathan is particularly concerned that traditional financial analysis does not take into account the operating leverage impact caused by the high fixed cost component in modern automated manufacturing facilities. He asks you to develop spreadsheet analysis which shows the impact of achieving 10% lower and 10% higher than the budgeted sales projections of 16,000,000 units. Nathan asks that this analysis include the leveraging impact of utilising fixed costs by showing manufacturing costs broken down between fixed and variable components.

(ii) Required:

(a) For the proposed ‘Buddy’ capital investment with sales at 5% higher than estimated calculate the following:

After-tax cash flows (3 marks).

Net present value (3 marks).

(b) For the proposed ‘Buddy’ capital investment with sales at 5% lower than estimated calculate the following:

After-tax cash flows (3 marks).

Net present value (3 marks).

 #IMPORTANT: In your analysis remember that Fixed Costs do not vary with increases/decreases in production/sales. Include Fixed and Variable Costs separately to

show how operating leverage will impact on costs per unit and enable you to identify any multiplier effect on expected cash flows.

Discuss your findings in the three cash flow analyses developed (above) and make a recommendation to Mr Quinlivan as to whether to proceed with the ‘Buddy’ proposal.

Discuss any other issues or items that you think will (or should) impact on his decision including the impact of spare production capacity at the proposed new factory (8 marks)

Answer:
(i)

Table 1: Statement for the proposed Buddy capital investment after tax cash flows  

 (In Million AUD)

Particulars

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Number of unit sold

16

16

16

16

16

16

16

16

16

16

selling price (per unit)

1.25

1.28

1.31

1.34

1.37

1.40

1.44

1.47

1.51

1.54

Total Revenue

20

20.47

20.95

21.44

21.95

22.46

22.99

23.53

24.08

24.65

 

 

 

 

 

 

 

 

 

 

 

Raw Material Cost

7

7

7

7

7

7

7

7

7

7

Fixed cost

5.6

5.6

5.6

5.6

5.6

5.6

5.6

5.6

5.6

5.6

Variable Cost

1.4

1.4

1.4

1.4

1.4

1.4

1.4

1.4

1.4

1.4

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

6

6.47

6.95

7.44

7.95

8.46

8.99

9.53

10.08

10.65

Depreciation

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

Profit Before Tax

4.05

4.52

5

5.49

6

6.51

7.04

7.58

8.13

8.7

Tax @ 30%

1.22

1.36

1.50

1.65

1.80

1.95

2.11

2.27

2.44

2.61

Profit After Tax

2.84

3.16

3.50

3.85

4.20

4.56

4.93

5.31

5.69

6.09

Non-cash expense (Depreciation)

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

Residual Value

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

5.00

Cash Flows after Tax

4.79

5.11

5.45

5.80

6.15

6.51

6.88

7.26

7.64

13.04

Table 2: Statement showing computation of payback period

Years

Cash Flows (Amount in Million $)

Cumulative Cash Flow

0

-20

-20

1

4.79

-15.21

2

5.11

-10.1

3

5.45

-4.65

4

5.8

1.15

5

6.15

7.3

6

6.51

13.81

7

6.88

20.69

8

7.26

27.95

9

7.64

35.59

10

13.04

48.63

Payback Period

 

 

3 + (1.15) / 5.80

3.19 Years

Table 3: Statement showing computation of NPV

(In Million AUD)

Particulars

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Cash Flows after Tax

4.79

5.11

5.45

5.80

6.15

6.51

6.88

7.26

7.64

13.04

Present Value Factor @ 20%

0.833

0.694

0.579

0.482

0.402

0.335

0.279

0.233

0.194

0.162

Present Value of Cash Flows

3.99

3.55

3.16

2.80

2.47

2.18

1.92

1.69

1.48

2.11

 

 

 

 

 

 

 

 

 

 

 

Total Present Value of Cash Flows

25.34

Initial Capital Outlay

20

Net Present Value

Total present value of cash flow less initial outflow

 

5.344206

Table 4: Statement showing computation of profitability index

A

Present value of cash inflow

25.33

B

Present value of cash outflow

20

 

Profitability Index (A/B)

1.2665

(ii)
A

Table 5: Statement for the proposed Buddy capital investment after tax cash flows by increasing 20%

(In Million AUD)

Particulars

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Number of unit sold

16.80

16.80

16.80

16.80

16.80

16.80

16.80

16.80

16.80

16.80

selling price (per unit)

1.25

1.28

1.31

1.34

1.37

1.40

1.44

1.47

1.51

1.54

Total Revenue

21.00

21.49

22.00

22.52

23.04

23.59

24.14

24.71

25.29

25.88

 

 

 

 

 

 

 

 

 

 

 

Raw Material Cost

7.07

7.07

7.07

7.07

7.07

7.07

7.07

7.07

7.07

7.07

Fixed cost

5.6

5.6

5.6

5.6

5.6

5.6

5.6

5.6

5.6

5.6

Variable Cost

1.4

1.4

1.4

1.4

1.4

1.4

1.4

1.4

1.4

1.4

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

6.86

7.35

7.86

8.38

8.9

9.45

10

10.57

11.15

11.74

Depreciation

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

Profit Before Tax

4.91

5.4

5.91

6.43

6.95

7.5

8.05

8.62

9.2

9.79

Tax @ 30%

1.47

1.62

1.77

1.93

2.09

2.25

2.42

2.59

2.76

2.94

Profit After Tax

3.44

3.78

4.14

4.51

4.87

5.25

5.64

6.03

6.44

6.85

Non-cash expense (Depreciation)

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

Residual Value

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

5.00

Cash Flows after Tax

5.39

5.73

6.09

6.46

6.82

7.20

7.59

7.98

8.39

13.80

Present Value Factor @ 20%

0.833

0.694

0.579

0.482

0.402

0.335

0.279

0.233

0.194

0.162

Present Value of Cash Flows

4.49

3.98

3.52

3.11

2.74

2.41

2.12

1.86

1.63

2.24

 

 

 

 

 

 

 

 

 

 

 

(b) calculation of NPV

Total Present Value of Cash Flows

28.09

Initial Capital Outlay

20

Net Present Value

Total present value of cash flow less initial outflow

 

8.094429

B

Table 6: Statement for the proposed Buddy capital investment after tax cash flows by decreasing 20%

(C) (IN Million AUD $)

Particulars

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Sales (unit)

15.2

15.2

15.2

15.2

15.2

15.2

15.2

15.2

15.2

15.2

selling price per unit

1.25

1.28

1.31

1.34

1.37

1.40

1.44

1.47

1.51

1.54

Total Sales

19

19.4465

19.90

20.37

20.85

21.34

21.84

22.35

22.88

23.42

 

 

 

 

 

 

 

 

 

 

 

Raw Material Cost

6.93

6.93

6.93

6.93

6.93

6.93

6.93

6.93

6.93

6.93

Fixed Cost

5.6

5.6

5.6

5.6

5.6

5.6

5.6

5.6

5.6

5.6

Variable Cost

1.33

1.33

1.33

1.33

1.33

1.33

1.33

1.33

1.33

1.33

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

5.14

5.59

6.04

6.51

6.99

7.48

7.98

8.49

9.02

9.56

Depreciation

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

Profit Before Tax

3.19

3.64

4.09

4.56

5.04

5.53

6.03

6.54

7.07

7.61

Tax @ 30%

0.96

1.09

1.23

1.37

1.51

1.66

1.81

1.96

2.12

2.28

Profit After Tax

2.23

2.55

2.86

3.20

3.53

3.87

4.22

4.58

4.95

5.33

Depreciation

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

1.95

residual Value

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

5.00

Cash Flows after Tax

4.18

4.50

4.81

5.15

5.48

5.82

6.17

6.53

6.90

12.28

Present Value Factor @ 20%

0.833

0.694

0.579

0.482

0.402

0.335

0.279

0.233

0.194

0.162

Present Value of Cash Flows

3.48

3.12

2.79

2.48

2.20

1.95

1.72

1.52

1.34

1.99

Calculation of NPV

Total Present Value of Cash Flows

22.60

Initial Capital Outlay

20

Net Present Value

Total present value of cash flow less initial outflow

 

2.598246

C

By considering the sensitivity analysis proposal should be accepted by Saturn pet care as even in adverse circumstances it is able to generate positive returns.

(iii)

Table 7: Statement showing comparative evaluation of available options

(In Million AUD)

Years

Option A

Present Value Factor @ 6%

present value of the cash flow

Option B

Present Value Factor @ 6%

present value of the cash flow

0

475000

1

475000.00

475000

1

475000.00

1

100000

0.943

94300.00

80000

0.943

75440.00

2

100000

0.89

89000.00

80000

0.89

71200.00

3

100000

0.84

84000.00

80000

0.84

67200.00

4

100000

0.792

79200.00

80000

0.792

63360.00

5

100000

0.747

74700.00

80000

0.747

59760.00

6

100000

0.705

70500.00

80000

0.705

56400.00

7

 

 

 

80000

0.665

53200.00

8

 

 

 

80000

0.627

50160.00

9

 

 

 

80000

0.592

47360.00

 

Total

5.917

966700.00

 

7.802

1019080.00

Annualised cost= NPV of the project/ cumulative present value annuity factor

Annualised cost under option A= 966700/5.917

163376.77

Annualised cost under option B= 1019080/7.802

130617.79

By considering the analysis, it can be noticed that project A is more beneficial in comparison to project B.

Part B

Executive summary

AMP Limited is engaged in providing various financial services to Australian and New Zealand customers inclusive of banking, wealth management and financial planning services (AMP Limited, 2017). The present study shows that firm has continued to improvise its financial and capital structure, and has mitigated material risks excellently, with their risk management strategies, statements and proper management of debt and equity.

Introduction

The present study aims to conduct the financial analysis of AMP Limited, covering the WAACC comparative analysis, financial ratio analysis and material risks analysis. Along with this the study also assesses the considerable changes that took place in the firm's capital structure in the last three years.

Comparative analysis of WAACC and capital structure

Capital structure of AMP limited

 

Amount  

Weight

Debt

$21009

.74

Equity

$7202

.26

Total

$28211

1

WACC of AMP Ltd

 

Weight

Cost of finance

Weighted Cost

(Cost of finance * weight)

Debt

.74

1.95% Note 1

1.46%

Equity

.26

9.73% Note 2

2.53%

 

1

 

3.99%

 

Note 1

Note 2

Cost of debt

Cost of equity

 

 

2.79%* (1-.3 /(tax rate))

=.29/3.22+8%

1.95%

=9.73%

Working note 1

Interest /Debt*100

585/21009

2.79%

Calculation of CAPM of AMP Ltd

Risk free rate + beta  (Return of market - Risk free rate

%)

 

Working note 2

Risk free rate is considered by yield rate delivered by Australian government bonds.

Comparison of capital structure of AMP Ltd and Common Wealth Bank

 

Commonwealth bank

Weight

AMP Limited

Weight

Debt

63,716

.77

21009

.74

Equity

18726

.23

7202

.26

 

82,442

1

28211

1

By analyzing the capital structure of the both companies, it has been observed that both the companies implement the parallel policy for retaining the capital structure.  Since both organizations are related with the banking industry along with the objective of earning profit therefore in the capital structure, the companies maintain the potion of debt higher than as compare with the equity, which leads to the ideal capital cost of the organizations.

Key financial ratios for AMP Limited 

Liquidity and solvency ratio

2017

2016

2015

2014

2013

Current ratio

0.67%

0.65%

0.78%

0.86%

0.85%

Long term debt

0.46%

0.45%

0.55%

0.52%

0.48%

Debt/equity ratio

0.88%

0.86%

1.24%

1.09%

0.970%

The ideal current ratio is 2:1, and by considering the above table the current ratio of company is not ideal, it is reducing overtime which shows that company has managed its working capital effectively and is required to work on the same (Market Watch, 2018). Since the company has given more weight to debt and less weight to equity in recent times, which is an ideal strategy because by considering trend of profits over the years, as with the stability in profits. It is because ensuring stability in financial costs is prudent decision in associated with the constant profits of the business

Profitability ratio

2017

2016

2015

2014

2013

Operating margin

20.58%

15.68%

21.00%

23.43%

20.01%

Net profit margin

12.31%

11.23%

12.83%

13.20%

11.91%

Profits of the company are stabilized over the years, reflecting that company has managed its assets and resources in an optimum manner.

Efficiency ratio

2017

2016

2015

2014

2013

Asset turnover ratio

0.08%

0.08%

0.08%

0.08%

0.08%

Receivable turnover ratio

2.07%

2.20%

2.31%

2.44%

2.43%

Similar to the profitability, company had maintained their efficiency over the assets appropriately, by focusing equally on retunes as well as available resources. However, company is required to improvise the current situation to ensure sustainable growth. This can be attained through investing in new technology to enjoy higher returns.

Investor ratio

2017

2016

2015

2014

2013

Return on Equity (ROE)

24.67%

22.88%

20.13%

21.51%

16.01%

Return on Tangible Equity

24.67%

22.88%

20.13%

21.51%

16.01%

Return on Assets (ROA)

1.00%

0.94%

1.16%

1.35%

1.02%

Return on Investment (ROI)

13.34%

11.39%

9.07%

10.41%

8.36%

Investor ratios are showing an increasing trend, stating that company has focused more on shareholder wealth of business.

Significant changes to have occurred to the firm's capital structure during the past three years

AMP Limited

 

2017

Weight

2016

Weight

2015

Weight

Equity

7202

2.06%

7462

5.09%

8519

5.06%

Debt

21009

7.04%

5241

4.01%

6664

4.04%

 

28211

1.0%

12703

1.0%

15183

1.0%

It can be asserted that the firm has maintained an effective balance between debt and equity, neither higher nor is lower. The management of firm is optimally good, and by the same it has enjoyed stabilized profit over time. The firm has provided preference towards debt currently in the year 2017, because if they earn more proceeds, then it not mandatory for them to provide more proceeds to shareholders as well. Hence, this strategy of increasing debt strengthens the financial performance and structure of the company, thereby assisting them in gaining more of profits and success.

Material risks faced by the business

AMP Limited has segregated risks into seven types of material risks which are managed, considered and reported to the board and reliable committees of make sure that there is proper and adequate management of risk. The risk appetite statement are based on these risks that include the main material risks types impact valid to AMP which can be employed to manipulate risks and support the expected risk culture of AMP (Annual Report of AMP Limited, 2017).

The seven material risks types are; strategic risks which is caused by lost or foregone value linked with key decisions, credit risks which is held by non-payment of an agreed payment by a counterparty, market risk caused by adverse changes in prices of market and investment values, insurance risks of drastic developments of insurance rates, liquidity risks is the risk that means inability to fund, concentration risks is caused by variety of exposures inclusive of credit concentration etc and the last is operational risks led from failure of internal procedures (AMP Limited, 2017).

Conclusion

On the basis of above analysis, conclusion can be drawn that the risk management strategy with the effective ERM structure properly deals with the AMP material risks, in this way the risk exposures are adequately  determined, assessed and mitigated by the firm. Thus, the firm has also continued to deliver effective financial performance from the last three years

References

AMP Limited, (2017). Retrieved from < https://www.amp.com.au/>.

AMP Limited, 2017. (2017). corporate governance statement Retrieved from < https://corporate.amp.com.au/content/dam/corporate/aboutus/files/2017%20corporate%20governance%20statement.pdf>.

Annual Report of AMP Limited, (2016). Retrieved from < https://www.asx.com.au/asxpdf/20170320/pdf/43gx9bppxvx00n.pdf>.

Annual Report of AMP Limited, (2017). Retrieved from < https://www.annualreports.com/HostedData/AnnualReports/PDF/OTC_AMLTY_2017.pdf>.

Annual Report of Common Wealth Bank, (2016). Retrieved from < https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-reports/annual_report_2017_14_aug_2017.pdf>.

Market Watch, (2018). AMP Ltd. Retrieved from < https://www.marketwatch.com/investing/stock/amp/profile?countrycode=au>.

Cite This Work

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

My Assignment Help. (2021). Financial Analysis Of AMP Limited. Retrieved from https://myassignmenthelp.com/free-samples/acc5152-intermediate-financial-accounting/corporate-governance-statement.html.

My Assignment Help (2021) Financial Analysis Of AMP Limited [Online]. Available from: https://myassignmenthelp.com/free-samples/acc5152-intermediate-financial-accounting/corporate-governance-statement.html
[Accessed 19 July 2024].

My Assignment Help. 'Financial Analysis Of AMP Limited' (My Assignment Help, 2021) <https://myassignmenthelp.com/free-samples/acc5152-intermediate-financial-accounting/corporate-governance-statement.html> accessed 19 July 2024.

My Assignment Help. Financial Analysis Of AMP Limited [Internet]. My Assignment Help. 2021 [cited 19 July 2024]. Available from: https://myassignmenthelp.com/free-samples/acc5152-intermediate-financial-accounting/corporate-governance-statement.html.

Get instant help from 5000+ experts for
question

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing: Proofread your work by experts and improve grade at Lowest cost

loader
250 words
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Plagiarism checker
Verify originality of an essay
essay
Generate unique essays in a jiffy
Plagiarism checker
Cite sources with ease
support
Whatsapp
callback
sales
sales chat
Whatsapp
callback
sales chat
close