Problem_Set_2_Group_O

.docx

School

Campbellsville University *

*We aren’t endorsed by this school

Course

60298 H1

Subject

Finance

Date

Jan 9, 2024

Type

docx

Pages

12

Uploaded by gundaswaroop14

Report
BA62070H320 Group Problem Set 2 Laxmi Kirti Bachu Satish Gadepally, Nagendar Jajula , Amarnath Kommalapati , Sandeep Ramini
Part 1: Capital Budgeting Analysis Shipping Costs Associated $10,000.00 Installation costs for the machine $30,000.00 Purchase for Machine $200,000 Four years of machine operation WACC 10% Total salvage value at end of machine operation $25,000.00 The $40,000 used in the maintenance of the empty lot should not be included in the analysis. The cost of maintaining the empty lot is part of the running costs of the firm and including it will be double accounting. Year 0 First Year Second Year Third Year Fourth Year Product Units 1250 1250 1250 1250 Cost per Unit $100 $103 $106.09 $109.27 SP/Unit $200 $206 $212.18 $218.55 Revenue $250,000 $257,500 $265,225 $273,182 NWC $30,000 $30,900 31,827$ $32,781.81 Year Sales Unit Sale price Variable cost Contri bution per unit Depreciatio n PBT Tax @40% PAT Depreciati on Operatin g Cash Flows Net working capital 0 30,000 1 1250 $200 $100 $100 79,992 45,008 18,003 27,005 79,992 106,997 900 2 1250 $206 $103 $103 106,680 22,070 8,828 13,242 106,680 119,922 927 3 1250 $212.1 8 $106.09 $106.0 9 35,544 97,069 38,827 58,241 35,544 93,785 955 4 1250 $218.5 5 $109.27 $109.2 7 17,784 118,807 47,523 71,784 17,784 89,068 32,782 Year 0 First Year Second Year Third Year Fourth Year
Investment $240,000 Revenue $250,000 $257,500 $265,225 $273,181.75 Cost $125,000 $128,750 $132,612.50 $136,590.88 EBITDA $125,000 $128,750 $132,612.50 $136,590.88 Depreciation $43,750 $43,750 $43,750 $43,750 EBIT $81,250 $85,000 $88,862.50 $92,840.88 Tax Payable $32,500 $34,000 $35,545 $37,136.35 Net Income $48,750 $51,000 $53,317.50 $55,704.53 Investment Total Cash Flows PVIF @10% Present Value Simple Cumulative Cash Flows Cumulative PV Cash Flows 240,000 270,000 1.000 $270,000.00 $270,000.00 $270,000.00 106,997 0.909 $97,269.82 $163,003.20 $172,730.18 119,922 0.826 $99,109.09 $43,081.20 $73,621.09 93,785 0.751 $70,462.13 $50,703.90 $3,158.96 15,000 89,068 0.683 $60,834.73 $139,772.03 $57,675.77 IRR = 19.93% Net Present Value = $57,675.77 MIRR = 15.46% PI = 1.21 (1 + 57675/270000) Payback Period = 2.81 (2 + 77100/95038) Discounted Payback = 3.48 (3 + 311141.85/64929.38) Year 0 Year 1 Year 2 Year 3 Year 4 FCF $62,500 $63,850 $65,240.50 $66,672.72 Discounting Factor 0.909090909 0.826446281 0.751314801 0.683013455 DCF $240,00 0 $56,818.18 $52,768.60 $49,016.15 $45,538.36 NPV $ (35,858.71) Payback method CF $ 258,263.22
The payback method does not consider the value of money over a period of time (inflation) given this, the firm ought to consider implementing the investment. NPV is the Net Present Value which considers the firmss discounting factor while evaluating the feasibility of its implementation. IRR is the internal rate of return; this is the rate at which NPV is zero Profitability Index is measured using the payoff received by the investment made. If NPV is negative, it means that the project is not feasible and should therefore not be implemented. Part 2: Working Capital Management Question One a). Days inventory outstanding = 365 days / Inventory turnover = 365 / 7.5 = 48.67 days Cash conversion cycle = Days sales outstanding+ Days inventory outstanding - Payables deferral period = (36.5 days + 48.67 days) - 40 days = 45.17 days. b). Net sales = 150000 Total assets = Accounts receivable + Inventory + Fixed assets = (Net sales * DSO days) / 365 + (COGS / Inventory turnover) + 35,000 = (150000*36.5) /365 + (121667 / 7.5) +35000
= (5475000/365) + 16222.27 + 35000 =15000+16222.27+35000 =$66222.27 Asset turnover = Net sales / Total sales = $150000 / $66222.27 = 2.27 Net profit = 150000 * 6% =150000*0.06 =$9000 Return on assets = Net profit / Total assets = 9000 / 66222.27 = 0.1359=13.59% c). Days inventory outstanding = 365 days / Inventory turnover = 365 / 9 = 40.56 days Cash conversion cycle = Days sales outstanding+ Days inventory outstanding - Payables deferral period = 36.5 days + 40.56 days - 40 days = 37.06 days
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help