Finance Analysis

Part 2

  • Company background(50 words) (1 reference)- from company website)

Tungsan Food Industries Pte Ltd –UEN(199002472E)

Source ——-http://www.tungsanfood.com/pdf/catalog1.pdf

Do not describe too much on the company timeline and history. describe more on what the company is doing etc…

  • Investment information(no need to add anything)

Tungsan Food Industries Pte Ltdplanto expand its manufacturing plant by investing with an initial cost of $5,000,000.Theinvestment objective is to boost up the production and sales of its new product which is the lobster oyster sauce. In order to mass produce this product, new machines, ingredients and labours were needed.

The marketing and sales director has provided the following sales forecasts:

  1st  year 2nd year 3rd year 4th year 5th year
Estimated sales, units 500,000 600,000 700,000 700,000 650,000
Unit selling price, $ 20 20 20 20 20
Total sales, $ 10,000,000 12,000,000 14,000,000 14,000,000 13,000,000

Table 2.1 Annual sales forecast for new lobster oyster sauce.

All sales, fixed and variable costs are cash flows. By the end of 5 years, the investment will be fully depreciated with no salvage value.

It is projected that 100% annual sales are collected in the year of sales.

It is projected that 100% of annual fixed and variable costs are paid in the year incurred.

The income tax rate is 17%.

Depreciation amount is not considered as a cash flow.

 

  • Cost of financing(100 words)

Provide literature review on cost of finance with 2 citations, for share holderinvestement( how to get the money from share holder? sale of shares etc….) and loans- short term loan

Tungsan Food Industries Pte Ltd plan to finance this $5,000,000 investment project by 80% bank loan and 20% from shareholders’ investment (equity).

Bankbusiness loan rate at 13% based on UOB Singapore.

Cost of equity =Return of Equity= 15%

Cost of borrowing        = 10.79%

Thus, the weighted average cost of capital = (0.2 x 15%) + (0.8 x 10.79%)

= 11.63%

  • Naive selection techniques(200 words)

Accounting rate of return

Return of investment (R.O.I)

Literature review with 2 references and citations.

Advantage/disadvantage with 2 references and citations.

 

  1st  year

Total, $

2nd year

Total, $

3rd year

Total, $

4th year

Total, $

5th year

Total, $

R.O.I

 

=Net Profit After Tax/ Investment

1,286,500/ 5,000,000

= 25.73%

1,909,000/ 5,000,000

=38.18%

2,531,500/ 5,000,000

=50.64%

2,531,500/ 5,000,000

=50.63%

2,220,250/ 5,000,000

=44.41%

 

Average R.O.I for 5 years is

Average annual profit/initial investment x100%= (1,286,500+1,909,000+2,531,500+ 2,531,500+2,220,250)/5= 41.92%

Comment on result xxxxx

High average roi and yearly roi which is high accounting rate of return. Good…

 

5 Sophisticated selection techniques(200 words)

5.1 Net Present Value (NPV)

Literature review with 2 references and citations.

Advantage/disadvantage with 2 references and citations.

 

Net Present Value= Present Value (cash inflows) – Present Value (cash outlows)

=$11,053,562.78 – $5,000,000 = $6,053,562.78 (positive NPV)

This project good because positive npv

Comment on result xxxxx

 

5.2 Internal rate of return (200 words)

Literature review with 2 references and citations.

Advantage/disadvantage with 2 references and citations.

IRR= 60%

This project good because positive npv

Comment on result xxxxx

Example, IRR is the breakeven point in capital investment project. anything falls below irr 60% consider positive NPV. Any demand rate more than 60% will lead to a negative NPV which is not good .losing money.

 

 

5.3 Discounted payback period(200 words)

Literature review with 2 references and citations.

Advantage/disadvantage with 2 references and citations.

 

Discounted payback period         2 years+ 617,280.80/2,538,795.35= 2.24 years

This project good because discounted payback period within 5 years of the investment period.

Comment on result xxxxx

 

6.Scenario analysis(100 words)

Literature review with 2 references and citations.

Advantage/disadvantage with 2 references and citations. Example- good to have another scenario to predict other outcome for this investement in case of any changes in the market.

6.1 New scenario

Net Present Value= Present Value (cash inflows) – Present Value (cash outlows)

=$6,252,304.94– $5,000,000 = $1,252,304.94 (positive NPV)

By factoring all possible changes and variables in this new scenario, the NPV of this investment is still positive. This shows that this investment is highly recommended to execute.

 

  • Summery and Recommendation(200 words)
Method Results
Accounting rate of return (ARR,ROI) 41.92%
Net present value (NPV) $6,053,562.78 (positive NPV)
Internal rate of return (IRR) 60%
Discounted payback period (years) 2.24 years
Scenario analysis for new Net present value (NPV) $1,252,304.94 (positive NPV)

 

 

 

Give some comment to summarise all up..example…Based on all good results, i strongly recommend that this investement opportunity is good to invest…..etc……critical evaluate  how the manager can use all these important technique and data for taking decisions in the context of wealth creation.

U need to conclude that all 5 method shows good results and this investment is good to go.

 

Last Updated on February 11, 2019 by Essay Pro