CF ASSIGNMENT

CF Assignment



CF Assignment

Answer 1

Westfield Plc Calculations:

Years 0 1 2 3 4 5 Demand

5,000

5,000

5,000

2,500

2,500

Selling Price

35.000

38.500

42.350

46.585

51.244

Sales revenue 175,000.000 192,500.000 211,750.000 116,462.500 128,108.750 Wage Rate

3.000

3.450

3.968

4.563

5.247

6.034

Labour hour required for producing one unit

2.000

2.000

2.000

2.000

2.000

Wages for one unit

6.900

7.935

9.125

10.494

12.068

Total Labour Cost 34,500.000 39,675.000 45,626.250 26,235.094 30,170.358 Redundancy Payment

9,125.250

 

Depreciation

9.500

10.450

11.495

12.645

13.909

15.300

overhaul current charge per unit

3.000

3.300

3.630

3.993

4.392

4.832

Total Overhaul Charge 16,500.000 18,150.000 19,965.000 10,980.750 12,078.825 Total Depreciation Charge 52,250.000 57,475.000 63,222.500 34,772.375 38,249.613 Variable Cost per unit

4.000

4.400

4.840

5.324

5.856

6.442

Total Variable Cost 22,000.000 24,200.000 26,620.000 14,641.000 16,105.100 Fixed Cost 25,000

27,500

30,250

33,275

36,602.500 40,262.750 Write Down Cost 52,250.000 Profit Before Tax 22,250.000 80,225.000 77,138.500 28,003.156 29,491.717 Net Cash Income 91,000.000 98,375.000 97,103.500 38,983.906 41,570.542 Taxes 31,850.000 34,431.250 33,986.225 13,644.367 14,549.690 Profit After Tax

 

(9,600)

(11,681)

(10,945)

(20,414)

(23,308)

Since the profit after tax is negative in all five years hence, Westfield Plc should not undertake the production of Sparrow. The revenue of the company has decreased drastically after year 3. Since the written down cost is more even the profit before tax decreased a lot after year 3 which eventually showed the final profit after tax as negative for Westfield Plc.

Investment Appraisal Problems due to High Inflation

The cash flows associated with a particular project may span some time period and it is also obvious that the inflation during that particular time period will affect the profitability of the project significantly. The forecasting of future events and projects by the firm should take into account the inflation. The inflation cost of specific items should be taken into account when it comes to investment appraisal. The expense of these particular things will show diverse rates of change, as will the costs of the items holding components of the particular things of expenses. Essentially, the presence of a slack between increments in expenses or costs and increase in prices might impressively diminish the productivity of a project under the inflation conditions. As the rate of expansion builds, so this issue comes to be more intense. Consequently, firms entering into settled cost contracts expanding over a long time of time may as well mastermind cost heightening statements to relieve the inflation effect (www.tax-accountants.co.uk). Before the computer assisted forecasting and modelling investment appraisals did not took into account the inflation rates. Due to inflation the prices keep growing higher and decrease the quantity of goods and services over the time. Investors should take inflation into account for investment appraisal purpose. A current investment appraisal should consider the discount rates such as, nominal rate, real interest rate and inflation rates. A good investment appraisal also incorporates projections that take into account the doubt of future inflation rates. Inflation rates have effects that are unpredictable on consumer demands.

Assuming that a firm endeavours to counter a 15 percent yearly inflation rate with twelve-month value expands of 15 percent, item interest may fall abruptly. In the event that an association endeavours to alleviate this by raising costs by less than the inflation rate, profits will ...