Project 4 Report.docx - Project 4 Finance for Managers...

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Project 4: Finance for ManagersAnnise A. HamedReport to ManagementJune 10, 2019
Analyze Financing and Investing Activities If you believe in the old adage, "it takes money to make money," then you can grasp the essence of cash flow and what it means to a company. The statement of cash flows reveals how a company spends its money (cash outflows) and where the money comes from (cash inflows). Weknow that a company's profitability, as shown by its net income, is an important investment evaluator. It would be nice to be able to think of this net income figure as a quick and easy way to judge a company's overall performance. However, although accrual accounting provides a basis for matching revenues and expenses, this system does not actually reflect the amount the company has received from the profits illustrated in this system. This can be a vital distinction. In making investment purchase decisions, management has a fundamental role in not only analyzing the possible and better projects to undertake but also ensure adequate reasonable risk are taken into consideration. In financing and investing activities it is vital to analyze the conceptof net present value of a project. In response to the questions hereunder is the evaluation that wasdone:Net Present Value, NPV = Discounted Cash inflows Minus Discounted cash outflows Alternatively, investment cost Minus the Purchase pricePV of Cash inflow = 780,000 X 5.2161 = 4,068,558PV of cash outflow = 4,000,000Net present Value = 4,068,558-4,000,000 = 68,558Then for the First-year’s Relative Cashflow = 1st Sales Revenue Minus (Depreciation PlusExpenses): Sales is 780,000Less Expenses (225,000)
Less Depr Exp (150,000)Earnings before Tax 405,000Tax @ 40% (162,000)Earnings after tax 243,000Add Depreciation 150,000Cash in flow 393,000Present Value = 68,558= 7800,000 - (150,000+225,000) = 780,000-375,000Cashflows before tax = 225,000Tax at 40 percent = 40%*225,000 = 90,000Therefore, the Cashflows after Tax = 225,000 - 90,000 = 135,000Year 1 Cashflow =135,000 and PV for Year 1 =68,558From the finance and investing chart, the calculations on the discounted cashflows to the PV, their sum for five years has a positive NPV which is greater than zero therefore the Company should purchase the new factory (White, 2016).When there are two projects that are mutually exclusive, investment decision rule is based on the project with a higher NPV resulting from its future cash flows. In this case Project B has a higher NPV that project A that is $70M and $55M respectively. In response, project B should be pursued because the project B is a positive externality that would increase the firms'

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