Academic analysis – 3,000 words

BRIEF

To demonstrate your understanding of the chapters presented, you are required to complete the following parts to form your analysis for Finance for Managers.

You should submit all three parts of your assignment as a written assignment. Submit any spreadsheet workings for Parts 1 and 3 as a separate attachment. Your spreadsheet supports your written assignment. It does not replace any part of it.

ASSIGNMENT INFORMATION

Part 1: Financial Statements

Notes:

• Although the statements are all for the same company and same period, the values for some items may differ between cash flow and P&L due to timing of actual cash out/inflows.

• Some values in the statements will require calculation.

• Some items could be interpreted in more than one way. State your assumption and account for the value in the appropriate way based on the assumption you have made.

1.1 Construct a balance sheet for ABC Pty Ltd for the year ended 30/06/2019 from the following jumbled list of accounts. All values are in $000.

Accounts Payable 270

Preference Shares 260

Vehicles 235

Tax Liability 90

Cash 200

Accounts Receivable 235

Ordinary Shares 690

Bank Loan 320

Inventory 370

Plant and Equipment 310

Retained Earnings ?

Land and Buildings 1210

Bank Overdraft 330

Corporate Bonds 430

1.2 Construct a profit and loss statement for ABC Pty Ltd for the year ended 30/06/2019 from the following jumbled list of accounts. All values are in $000.

Closing Inventory 257

Wages -117

Purchases 554

Sales 992

Interest -27

Dividend Received 50

Utilities -57

Loss from Sale of Machinery -10

Opening Inventory 272

Rent -82

Tax -10

1.3 Construct a statement of cash flows for ABC Pty Ltd for the year ended 30/06/2019 from the following jumbled list of accounts. All values are in $000.

Repayments of Long-Term Borrowings 24

Wages Paid 130

Cash Paid to Suppliers 240

Proceeds from Long-term Borrowings 155

Interest Paid 12

Taxes Paid 8

Interest Received 10

Dividend Paid 26

Proceeds from Issue of New Shares 85

Cash Received from Customers 460

Purchases of Plan, Property and Equipment 350

Cost of Buying Back Shares 31

Proceeds from Sale of Plan, Property and Equipment 80

Dividends Received 9

Payment of Finance Lease Liabilities 48

Cash at the beginning of the year 270

Part 2: Financing – Risks and Returns

2.1 When considering potential sources of financing for a business, list five features/characteristics that one should consider and provide brief discussion on why these characteristics are important.

2.2 List three sources of financing suitable for a start-up firm and explain why they are most suitable for a firm at this stage of its lifecycle.

2.3 List three sources of financing suitable for a growing-expansion firm and explain why they are most suitable for a firm at this stage of its lifecycle.

Part 3: Cash flow Estimation and Project Evaluation

Refer to the following information to form your responses to questions in Part 3 ABC Pty Ltd is considering a new project. Your task is to determine whether the additional revenues generated by the project will justify the investment.

 A feasibility study will be conducted to determine whether or not the project is technically feasible at a cost of $20,000.

 The project will last for 5 years and will require the purchase of equipment costing $200,000.

 The equipment will be depreciated on a diminishing value basis at the appropriate rate according to Australian Tax Office rules to a book value of zero for tax purposes.

 The equipment is expected to have a salvage value of $10,000.

 The project will increase the company’s revenue from $250,000 per year to $370,000 per year. Operating expenses are always 60% of revenue.

 The project will require an increase in net working capital of $25,000.

 It will cost $20,000 to shut down the project, including removal of buildings and equipment.

 The corporate tax rate is 30% and the firm’s WACC is 8.90%

 Assume all terminal cash flows of the project will happen at the end of Year 6. 

3.1 What is the rate of diminishing value depreciation (in terms of % per annum)?

Complete the following in a table showing the dollar amount of depreciation and book value each year.

Year 1, 2, 3, 4, 5

Opening book value $200,000 for Year 1

Depreciation

Closing book value $0 for Year 5

3.2 Calculate the firm’s additional EBIT in Years 1 to 5 and its after tax incremental earnings by completing the following in a table.

Year 1, 2, 3, 4, 5

Revenue

Expenses

Depreciation

EBIT

Tax

After Tax Earnings

3.3. Calculate the firm’s additional free cash flows in Year 0 to 6 by completing the following table. Free cash flows are to be calculated from after tax earnings using the indirect methods.

Year 0, 1, 2, 3, 4, 5, 6

After Tax Earnings

Depreciation

Feasibility Study

Initial Outlay

Increase in NWC

Profit / loss on salvage

Salvage Value Tax

Shutdown Costs

Shutdown Cost Tax

Free Cash Flow

3.4 What is the Net Present Value (NPV) of the cash flows generated by the project? Based on the NPV, should the project be implemented?

3.5 Discuss alternative project evaluation measures and their pros and cons.

CONSIDERATIONS

Upon review of my essay, have I demonstrated critical thinking aligned with my chosen analysis task option?

Specifically:

• Have I Identified and defined the academic concepts related to the analysis task using current academic literature?

• Have I demonstrated an analysis of these relevant concepts and topics?

• Have I demonstrated an ability to apply and integrate the relevant concepts and topics in the analysis; have I provide evidence or examples?

• Have I developed an argument and demonstrated understanding of differing points of view?

• Have I demonstrated understandings of the relevance of the chosen concepts to the overall concept of management?

• Have I demonstrated understandings of considerations and implications for contemporary management practice?

• Did I produce a quality essay? Consider presentation, referencing and a balance between academic and industry sources.

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