Finance For Managers Project
9614 Industry Based Project 1: Finance For Managers
GRADUATE ATTRIBUTES
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 30/06/2018 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 |
The balance sheet presents the liabilities, assets, and owners’ equity of a firm. The statement is based on the equation: (Collier, 2015). Therefore, in the balance sheet of ABC Pty, the retained earnings are amounting to 170000 dollars (2560 – 2390). The balance sheet of ABC Pty can be presented as follows:
ABC Pty
Balance Sheet
As at 30/06/2018
(000)
| Assets | |
| Vehicles | 235 |
| Accounts Receivable | 235 |
| Cash | 200 |
| Inventory | 370 |
| Plant and Equipment | 310 |
| Land and Buildings | 1210 |
| Total Assets | 2560 |
| Liabilities | |
| Accounts Payable | 270 |
| Tax Liability | 90 |
| Bank Loan | 320 |
| Bank Overdraft | 330 |
| Corporate Bonds | 430 |
| Equity | |
| Preference Shares | 260 |
| Ordinary Shares | 690 |
| Retained Earnings | 170 |
| Total Liabilities and Equity | 2560 |
OR
1.2 Construct a profit and loss statement for ABC Pty Ltd for the year ended 30/06/2018 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 |
1.3 Construct a statement of cash flows for ABC Pty Ltd for the year ended 30/06/2018 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 |
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: Cashflow 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 has been conducted to determine whether or not the project is technically feasible at a cost of $25,000. |
| | 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. |
| | 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 cashflows 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 table showing the dollar amount of depreciation and book value each year.
| Year | 1 | 2 | 3 | 4 | 5 |
| Opening book value | $200,000 | ||||
| Depreciation | |||||
| Closing book value |
3.2 Calculate the firm’s additional EBIT in Years 1 to 5 and its after tax incremental earnings by completing the following 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.
| 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.