HC2091 Business Finance Assignment Question Answer Help from Native Writers
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- Referencing Styles : Harvard
- Course Code: HC2091
- Course Title: Business Finance
- Words: 2000
- University: Holmes Institute
- Country: AU
This assignment task is a capital budgeting and project evaluation task with two parts:
Part 1: Research on capital budgeting
Part 2: Risk analysis and project evaluation
Content And Structure
The introduction should briefly explain the purpose of the assignment
Part 1. Research On Capital Budgeting
Do a research on making capital budgeting investment an answer the following questions:
1.1. What is an incremental cashflow and why decision of a financial manager on accepting or rejecting one investment project should be based on incremental cash flow?
1.2. What is operating cash flow and how to calculate an operating cash flow for an investment project?
1.3. Explain the reason why:
Depreciation expenses need to be added to find out the annual free cash flow that comes from an investment project for each year of the project?
Changes in working capital and residual (salvage value) of a long-term asset must be added to the free cash flow of the final year of an investment project only?
Part 2. Risk Analysis And Project Evaluation
Assume that your group is working for financial department of a company, which is considering a potential project with a new product that is expected to sell for an average price of $30 per unit. Launching this project will require the company to buy an equipment with the cost of $2 500 000 and residual value of $400,000 after four year. The company expects it can sell 250 000 unit per year at this price for a period of 4 years with this equipment
To produce a unit of product, the company needs to spend a variable cost per unit of $10. Cash fixed costs per year is $250 000. There is no requirement of additional working capital. Other information is available below:
- Depreciation method: straight line
- Discount rate: 15%
- Tax Rate: 30%
Your financial department conducted some economics forecast and estimated that in the coming time, there may not be any significant changes in variable cost per unit and total fixed costs per year in production. However, sales may be subject to an unexpected outcome due to the rivalry of your company’s competitor. This competitor is also developing their new product with big competitive advantages. If the competitor successfully launches their new product and occupies the best potential market before you, the worst-case scenario will occur to your company product, where both unit sales and price per unit decrease by 10%. If your company successfully launches your new product and occupy the best potential market before your competitor, then your company can enjoy a 10% increase in both unit sales and price per unit.
Perform a scenario analysis with cash flows of the project to determine the sensitivity of the project NPV with the following changes in the value drivers in the worst-case scenario and best- case scenario.
Worst Case Scenario:
- Unit sales decrease by 10%
- Price per unit decreases by 10%
Best Case Scenario:
- Unit sales increase by 10%
- Price per unit increases by 10%
Provide your results in (a) relevant tables. A conclusion on the risks of the project cash flows need to be drawn out.
Based on the outcome of two parts, provide brief conclusion, summarizing what you have done in the assignment