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# Financial Business Case Study

University: New College Durham

• Unit No: 6
• Level: High school
• Pages: 15 / Words 3636
• Paper Type: Assignment
• Course Code: ACC00716
• Downloads: 486

Table of Content

Question :

This sample will let you know about:

• Discuss about the Financial analysis.
• Discuss about the Capital budgeting.
Answer :
Organization Selected : Water Pty Ltd

## INTRODUCTION

The detail and systematic examination of available financial data which support in reaching the appropriate decision is known as financial analysis (Buchanan, 2014). This mainly include the analysis of overall projected and historical cash flow, risk and profitability that support in allocating the resources. It is determined that accurate financial analysis is performed upon the information that is presented in annual statement so that decision are meaningful.

In this report, financial analysis of the proposed project for Water Pty Ltd is determined which help in making better decision to improve the transportation services. Get Dissertation help london from our qualified experts!

## TASK

### 1) Spread sheet

Financial analysis of the proposed project

 N Year 0 1 2 3 4 5 6 7 Investment (I) Initial cash flow (5* 2M) -10000000 Annual cash flow a Sales revenue 15000000 15750000 16537500 17364375 18232593.75 19144223.4375 20101434.609375 b Variable cost -8000000 -8320000 -8652800 -8998912 -9358868.48 -9733223.2192 -10122552.147968 c Fixed cost -4000000 -4000000 -4000000 -4000000 -4000000 -4000000 -4000000 d Depreciation (10M/7) -1428571 -1428570 -1428569 -1428568 -1428567 -1428566 -1428565 e= a- (b+c+d) Operating profit before tax 1571429 2001430 2456131 2936895 3445158.27 3982434.2183 4550317.461407 f=e* (1-0.25) Profit after tax 1178571.75 1501072.5 1842098.25 2202671.25 2583868.7025 2986825.663725 3412738.09605525 g Depreciation 1428571 1428572 1428573 1428574 1428575 1428576 1428577 h= f+g After tax cash flow 2607142.75 2929644.5 3270671.25 3631245.25 4012443.7025 4415401.663725 4841315.09605525 cf Net cash flow -10000000 2607143 2929643 3270668 3631240 4012437 4415393 4841305 PV=(cf/1.07Î›N) Present value -10000000 2436582.24299065 2558863.65621452 2669839.34441485 2770255.60979545 2860812.12704891 2942162.79064386 3014921.43913458 Sum of PV NPV 9253437.21024283 Average of Cash flow 3672547 ARR 36.72547

### Scenario Analysis

 Best Case NPV Net cash flow -10000000 2607143 2929643 3270668 3631240 4012437 4415393 4841305 Present value @ 5% -10000000 2482993.33333333 2657272.56235828 2825325.99071375 2987430.13456327 3143849.3808062 3294834.23880159 3440625.07696561 NPV 10832330.717542 Worst Case NPV Net cash flow -10000000 2607143 2929643 3270668 3631240 4012437 4415393 4841305 Present value @ 9% -10000000 2391874.3119266 2465821.90051342 2525555.79836436 2572461.96342838 2607808.74184477 2632754.5812312 2648359.62473118 NPV 7844636.92203993

### Sensitivity Analysis

 Base Scenario -10000000 2607143 2929643 3270668 3631240 4012437 4415393 4841305 Optimistic scenario (+10%) -11000000 2867857 3222607 3597735 3994364 4413681 4856932 5325436 Pessimistic scenario (-10%) -9000000 2346429 2636679 2943601 3268116 3611193 3973854 4357175 Base Scenario Cash Flows -10000000 2607143 2929643 3270668 3631240 4012437 4415393 4841305 PV @ 7% -10000000 2436582.24299065 2558863.65621452 2669839.34441485 2770255.60979545 2860812.12704891 2942162.79064386 3014921.43913458 NPV 9253437.21024283 IRR 18.82% Optimistic scenario (+10%) Cash Flows -11000000 2867857.3 3222607.3 3597734.8 3994364 4413680.7 4856932.3 5325435.5 PV @ 7% -10000000 2680240.46728972 2814750.02183597 2936823.27885633 3047281.170775 3146893.3397538 3236379.06970825 3316413.58304804 NPV 11178780.9312671 IRR 22.19%

## Memo

There have been different methods that are used to detriment the actual feasibility and appropriateness of investment made by the respective company that support in reaching the meaningful results. Some of these are discussed below:

Capital budgeting: In case, if company implement the new machinery or extend a product range or even upgrade the existing machinery, companies make capital expenditure (Capital Budgeting, 2020). Capital spending includes money being spent by a corporation on buying or selling supplies, property or equipment used for the development or operation of its reliable customers. In general term, capital Budgeting is indeed a method of judgement making in which a company or government plans and calculates long-term capital costs of which the cash flow earnings are supposed to come after a year. It includes defining capital in balances and cash out flows instead of calculating income and spending expenditure and it consider adjustments for the time worth of money. Many techniques of evaluating capital budgeting are being used to assess the financial viability of an expenditure of resources. The periods involve paybacks, discounted payments period, Net present value, Internal return rate etc. In order to determine the value of investment for transportation services NPV and IRR have been calculated which help in making suitable decision. Importance of these methods are discussed below:

Net Present Value: The definition of net present value (NPV) includes discounting a future revenues in context of the present value. The cash inflows can be positively or negatively (money paid). The original investment's actual value is full facial interest, provided that the investment is produced at the outset of the phrase. At the conclusion of the review cycle, the closing cash flow including any gross gains or fair market value of the financial instrument.

Profitability Index or ARR: The profitability or productivity measure is computed by dividing the current value of the capital expenditure cash flows by the current value of the capital expenditure cash outflows. The capital investment is approved when the productivity ratio is higher than one and when the capital investment is below one, the investment is declined due to lower profitability (Ehrhardt and Brigham, 2016).

Cash flow estimation: Expenditure cycles that are intended to last over one year, i.e. Long-term expenditure, are defined, analysed and chosen cash flow. There are some major importance of cash flow that are beneficial for making the decision to implement the required ferries for making ease transportation.

• Impact the business's productivity and profits and have a long term impact.
• Without a financial loss not possible and reverse.
• The Problems In Investment decision are associated with large costs and small resources
• Contribute to an uncertain economic time with different risks.
• Costs and income increase at various times.

Suggested read- Entrepreneurship and Small Business Management

Discount rate & WACC: The weighted average cost of capital (WACC), when contrasting the corporate debt and equity arrangement, is a quantitative formula that measures the cost of investment and purchase of the company. Compare the debt weighted as well as the actual cost of debt or receiving funds by shareholder funding, according to the levels of debt and capital in the business, of current capital acquisitions and expansions (Genest, Gendron and Bourdeau-Brien, 2013). Cash balances on an after-tax basis must be assessed since the original investment on a project involves after-tax financial values, the investment benefits must be assessed in almost the same units, actually after-tax present value. In the above calculation, it is assumed that the rate of average cost of capital which is 7 % is consider as the discount factor that support in determining the net value of the initial investment. Order assignment help from our experts!

Sensitivity Analysis: The methodology used to evaluate how independence variable factors influence a certain dependent factor is known as sensitivity analysis underneath a specific number of assumptions. The use depends on one or even more input factors throughout the certain parameters, like how interest rate rises will affect the value of a investment. There are some specific steps that are used by the company while conducting sensitivity analysis in the transportation services. Such as:

• First the performance of the basic case becomes determined such as the NPV of a given base case input value in context to which sensitivity is being to be calculated. On the other side all other input models are remain fixed.
• Furthermore the value of the results at a specific new value of input are determined and other remain constant.
• In addition the percentage change in the input and the percentage variation in the output are measured (Maxfield, 2019).
• In last, to measure the actual sensitivity the percentage modification in output to the input are being determined.

The sensitivity evaluation pattern continued with respect to another input thus holding the existing inputs unchanged before sensitivity for every variable that is achieved. The corresponding approach is also applied that actually needs the solution of basic partial variables to examine sequential sensitivity. While this technique is computer-efficient, it is an exhausting challenge to solve calculations. The choosing of a certain series of tests for a defined variable is included and the configuration for the configurations will then be performed. The output is then used to execute sensitivity measurements. Need Assignment Samples?Talk to our Experts!

Scenario Analysis : The scenario analysis is the estimation of the interest, in a number of scenarios i.e. potential prospects, of a single expenditure or community of investments. In the corporate decision-making methods, most executives conduct situation research during order to identify the right way to increase the income for the company. It also examines the worst possible solution (worst-case scenario) and anticipates possible losses and organisational issues. Investor & company executives will decide, by scenario review, how much chance they take before spending or initiating a new venture. This is a way to learn of the possibilities structurally. To order to help identify possible future issues in the scenario review, we should take measures appropriate for eliminating or reducing their effects. For strategic planning actions, simulations are especially necessary. By way of scenario evaluation management of respective area may assess the future potential market occurrences and determine the financial impact of alternate responses (Maxfield, 2019).

## CONCLUSION

In the end of report, it is concluded that evaluation of the financial reports is also the method of evaluating and examining the financial results of an entity to follow stronger economic decisions. From the above calculation it is recommended that making investment in order to but specific number of ferries would be beneficial for Water Pty Ltd that support in resolving the issue related with transportation.

Read more - International Marketing an Important Marketing Principle

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