Evaluate investment options available for organizations

Assignment Help Financial Management

Reference no: EM133122500

BM5152 Financial Management - Higher Diploma in Business Management

Learning outcome 1: Understand the concepts of financial management and corporate finance.

Learning outcome 2: Analyze the financial performance of a business by using basic quantitative approach.

Learning outcome 3: Evaluate investment options available for organizations

Learning outcome 4: Evaluate the sources of finance available to a business.

Scenario and the Task

Financial management involves all the activities that enable a company to obtain capital for growth, allocate resources efficiently, maximize the income potential of the business activity and monitor results through accounting documents. Such management requires a well-written, comprehensive financial management plan clearly outlining the assets, debts and the current and future profit potential of your business.

As the financial manager in the company you want to expand the existing business. You need to forecast the level of investment required and make a plan to acquire the investment through different sources of finance. Whether your organization is a for-profit or nonprofit, you have to address certain considerations and make certain decisions if you set out to intentionally expand
or grow your organization, products and/or services.

Learning outcome 01

Hence being a young manager you were searching for a professional advice on expanding the firm, you have to prepare a report for him while considering following factors.

1.1 What is the main purpose/tasks of financial management
1.2 Describe your role as the finance manager of the company
1.3 Explain why corporate finance is important to an organization and the role it plays
1.4 Explain the importance of financial planning

Learning outcome 02
2.1 Prepare the balance sheet and the income statement with the information given below

2.2 Calculate the following ratios based on the prepared income statement and the balance sheet

2.3 Analyze the answers derived from calculating the ratios.

Learning outcome 03

3.1 ABC Industries has four potential projects all with an initial cost of $2,500,000. The capital budget for the year will only allow to accept one of the four projects. Given the discount rates and the future cash flows of each project, which project should they accept based on the net present values of each project?

3.2 If you deposit $16,000 per year for 12 years (each deposit is made at the end of each year) in an account that pays an annual interest rate of 14%, what will your account be worth at the end of 12 years?

3.3 An investment of $200,000 is expected to generate the following cash inflows in six years:
Year 1: $70,000
Year 2: $60,000
Year 3: $55,000
Year 4: $40,000
Year 5: $30,000
Year 6: $25,000

Required: Compute payback period of the investment. Should the investment be made if management wants to recover the initial investment in 3 years or less? Give reasons for your answer.

3.4 The XYZ Factory wants to replace an old machine with a new one. The old machine can be sold to a small factory for $10,000. The new machine would increase annual revenue by $150,000 and annual operating expenses by $60,000. The new machine would cost $360,000. The estimated useful life of the machine is 12 years with zero salvage value.

Required:
a. Compute accounting rate of return (ARR) of the machine using above information.
b. Should XYZ Factory purchase the machine if management wants an accounting rate of return of 15% on all capital investments?Give reasons for your answer.

Learning outcome 04

In a growing business, financial resources are often viewed as the major factor limiting growth potential. There are two methods of improving your financial base: (1) grow gradually and allow profits to fund additional growth and (2) seek outside funds (i.e., debt or equity funding).Either approach will consume time and energy, or you will experience some rejections.

4.1 Identify possible financing methods to a business

4.2 The implication for each financing method that you listed in 4.1

4.3 Evaluate the options using appropriate criteria to select the best financing option.

Attachment:- financial-management assignment.rar

Reference no: EM133122500

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