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calculationspaper.docx
QUESTION 1
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Ratios |
Formulae |
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WYRE CHILD SERVICES Ltd |
BORDER COMMERCIALS Ltd |
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Profitability Ratios |
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ROCE |
PBIT |
% |
186% |
49.1% |
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Cap Employed |
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Return on Assets |
PBIT |
% |
95% |
49.13% |
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Total Assets |
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Asset Turnover |
Revenue |
x |
3.7 |
1.33507462 |
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Total Assets |
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Gross Profit Margin |
Gross profit |
% |
49.20% |
70.14559752 |
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Revenue |
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Net Profit Margin |
PBIT |
% |
26% |
36.80312959 |
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Revenue |
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Efficiency Ratios |
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Receivables Collection period (R) |
Trade receivables x 365 |
days |
19 |
82.70810993 |
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Sales |
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Payables payment period (P) |
Trade payables x 365 |
days |
97 |
119.3942296 |
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Cost of sales |
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Cash Cycle |
R - P |
days |
-78 |
-36.68611971 |
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Liquidity Ratios |
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Current Ratio |
Current Assets |
x:1 |
2 |
5.298631897 |
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Current liabilities |
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Financial Risk or GEARING Ratios |
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Gearing |
Fixed int capital |
% |
0.00% |
45.28271285 |
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Total capital employed |
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Interest cover ratio |
PBIT |
x |
0 |
12.03306064 |
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Interest charges |
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QUESTION 2
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Acoustic |
Bass |
Clarinet |
Total |
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|
(£m) |
(£m) |
(£m) |
(£m) |
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Sales |
360 |
240 |
180 |
780 |
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Cost of sales |
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Materials |
-120 |
-80 |
-80 |
-280 |
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Labour |
-120 |
-120 |
-120 |
-360 |
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Overheads |
-60 |
-60 |
-60 |
-180 |
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Profit/(loss) |
60 |
-20 |
-80 |
-40 |
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|
Acoustic |
Bass |
Clarinet |
Total |
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|
(£m) |
(£m) |
(£m) |
(£m) |
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Sales Revenue |
360 |
240 |
180 |
780 |
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Variable Costs |
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Materials |
-120 |
-80 |
-80 |
-280 |
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Labour |
-120 |
-120 |
-120 |
-360 |
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Contributions |
120 |
40 |
-20 |
140 |
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2B Calculating Net Present Value |
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Year 0 |
Year 1 |
Year 2 |
Year 3 |
Total |
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£ |
£ |
£ |
£ |
£ |
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Capital Investment |
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Land |
-4000 |
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|
-4000 |
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Building costs |
-7900 |
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|
-7900 |
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Fittings and Equipment |
-1830 |
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|
-1830 |
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|
-13730 |
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Sales revenue |
|
28600 |
29172 |
29755.44 |
88099.44 |
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Operational Costs |
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Cost of Acoustic products sold |
|
-7900 |
-8058 |
-8219.16 |
-24177.2 |
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Cost of Bass stock sold |
|
-5660 |
-5773.2 |
-5888.66 |
-17321.9 |
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Staff Costs |
|
-1180 |
-1203.6 |
-1227.67 |
-3611.27 |
|
Light and heat |
|
-1676 |
-1709.52 |
-1743.71 |
-5129.23 |
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Other Overheads |
|
-6424 |
-6552.48 |
-6683.53 |
-19660 |
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Total cash inflow/outflow |
-13730 |
5760 |
5875.2 |
5992.71 |
18199.9 |
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Cost of capital is 12% |
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Present value factor @ 12% |
1 |
0.893 |
0.797 |
0.712 |
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Calculating Net Present Value |
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Year 0 |
Year 1 |
Year 2 |
Year 3 |
Total |
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£ |
£ |
£ |
£ |
£ |
|
Capital Investment |
-13730 |
|
|
|
-13730 |
|
Sales Revenue |
|
28600 |
29172 |
29755.44 |
88099.44 |
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Operating Costs |
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Cost of Acoustic products sold |
|
-7900 |
-8058 |
-8219.16 |
-24177.2 |
|
Cost of Bass stock sold |
|
-5660 |
-5773.2 |
-5888.66 |
-17321.9 |
|
Staff Costs |
|
-1180 |
-1203.6 |
-1227.67 |
-3611.27 |
|
Light and Heat |
|
-1676 |
-1709.52 |
-1743.71 |
-5129.23 |
|
Other Overheads |
|
-6424 |
-6552.48 |
-6683.53 |
-19660 |
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Net Cash Flow |
-13730 |
5760 |
5875 |
5993 |
18199.9 |
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PV Factor |
1 |
0.893 |
0.797 |
0.712 |
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Discounted Cash Flow |
-13730 |
5143 |
4684 |
4265 |
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Net Present value |
362 |
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Payback Period (PBP) |
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Year 0 |
Year 1 |
Year 2 |
Year 3 |
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£ |
£ |
£ |
£ |
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Net Cash Flow |
|
-13730 |
5760 |
5875 |
5993 |
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Cumulative |
|
-13730 |
-7970 |
-2095 |
3898 |
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The payback period is 2years and {(2095/5993) * 12 months} = 4.1949 (2years and 5months) |
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Discounted Payback Period |
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Year 0 |
Year 1 |
Year 2 |
Year 3 |
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£ |
£ |
£ |
£ |
|
Discounted Cash Flow |
|
-13730 |
5143 |
4684 |
4265 |
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Cumulative |
|
-13730 |
-8587 |
-3903 |
362 |
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The Discounted Payback Period is 2years and {(3903/4265) * 12 months} = 10.9815 (2years and 11months) |
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iii. Internal rate of return |
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In order for this project to be approved, the IRR must be greater than 17%. |
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The IRR for this project is 13.83% |
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