FIN80005 Corporate Financial Management - Individual Assignment Prepared by Dr Mardy Chiah Semester 2, 2018 The objective of this assignment is to encourage students to use Excel spread sheets to aid...

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Answer To: FIN80005 Corporate Financial Management - Individual Assignment Prepared by Dr Mardy Chiah Semester...

Soumi answered on Sep 01 2020
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CORPORATE FINANCE
FIN80005 CORPORATE FINANCIAL MANAGEMENT – INDIVIDUAL ASSIGNMENT
Part 1
The table below contains values like beta and others that have been calculated:
    Particulars
    Amount (Rs)
    Cost of New Machinery
    2600000
    Installation and Shipping Cost
    200000
    Total Cost of New Machinery
    2800000
    Life of machine
    10
    Depreciation method
    Reducing balance method
    Depreciation rate
    20% per annum
    Scrap Value of the m
achine
    200000
    Increase in Operating Revenues for 1st year
    800000
    Increase in Operating Revenues after 1st year
    10% per annum
    Increase in Variable and Operating costs
    40% of incremental revenue
    Decrease in operating revenues
    200000
    Decrease in operating costs
    80000
    Initial increase in working capital
    50000
    Yearly increase in working capital
    10,000 per year for 9 years
    Debt-Equity ratio
    0.8
    Coupon rate of Debentures
    12%
    Tax Rate
    30%
    Therefore, effective cost of debt / debentures
    8.40%
    Beta = Slope of Return series an market return series
    1.557770795
    Average rate of Market return
     
    Cost of Equity (Ke)= Rf+ Beta(Rm-Rf)
    15.87%
    Weighted Average Cost of Capital (WACC)
    9.895%
    Particulars
    Probability
    Value
     
    Case 1: Expected Revenue
    50%
    -2,63,286.77
     -6,31,643.38
    Case 2: Revenue will be lower by 40%
    30%
     -18,78,881.64
     -5,63,664.49
    Case 3: Revenue will be higher by 20%
    20%
     -9,55,489.33
     -1,91,097.87
    Net Profits from the project
     -13,86,405.74
Table 1: Important Particulars
(Source: Learner)
5
Case 1: 50% Probability
    Case 1: 50% Probability
     Particulars / Year
     1
     2
     3
     4
     5
     6
     7
     8
     9
     10
    Incremental Revenues
     800,000.00
     880,000.00
     968,000.00
     1,064,800.00
     1,171,280.00
     1,288,408.00
     1,417,248.80
     1,558,973.68
     1,714,871.05
     1,886,358.15
    Less: Decrease in Revenues
     200,000.00
     200,000.00
     200,000.00
     200,000.00
     200,000.00
     200,000.00
     200,000.00
     200,000.00
     200,000.00
     200,000.00
    Net Increase in Revenues
     600,000.00
     680,000.00
     768,000.00
     864,800.00
     971,280.00
     1,088,408.00
     1,217,248.80
     1,358,973.68
     1,514,871.05
     1,686,358.15
    Increase in Operating Cost
     320,000.00
     352,000.00
     387,200.00
     425,920.00
     468,512.00
     515,363.20
     566,899.52
     623,589.47
     685,948.42
     754,543.26
    Decrease in Operating cost due to decrease sales
     80,000.00
     80,000.00
     80,000.00
     80,000.00
     80,000.00
     80,000.00
     80,000.00
     80,000.00
     80,000.00
     80,000.00
    Net Increase in Operating Cost
     240,000.00
     272,000.00
     307,200.00
     345,920.00
     388,512.00
     435,363.20
     486,899.52
     543,589.47
     605,948.42
     674,543.26
    Net Increase In Contribution (Revenue - Operating Costs)
     360,000.00
     408,000.00
     460,800.00
     518,880.00
     582,768.00
     653,044.80
     730,349.28
     815,384.21
     908,922.63
     1,011,814.89
    Less: Depreciation
     560,000.00
     448,000.00
     358,400.00
     286,720.00
     229,376.00
     183,500.80
     146,800.64
     117,440.51
     93,952.41
     75,161.93
    Increase in Working Capital
     60,000.00
     70,000.00
     80,000.00
     90,000.00
     100,000.00
     110,000.00
     120,000.00
     130,000.00
     140,000.00
     140,000.00
    Interest on Working Capital
     5,936.73
     6,926.18
     7,915.64
     8,905.09
     9,894.54
     10,884.00
     11,873.45
     12,862.91
     13,852.36
     13,852.36
    Therefore, increase in profits
     -205,936.73
     -46,926.18
     94,484.36
     223,254.91
     343,497.46
     458,660.00
     571,675.19
     685,080.79
     801,117.86
     922,800.60
    Less: Tax @ 30%
     -61,781.02
     -14,077.85
     28,345.31
     66,976.47
     103,049.24
     137,598.00
     171,502.56
     205,524.24
     240,335.36
     276,840.18
    Net Profits After Tax
     -144,155.71
     -32,848.33
     66,139.06
     156,278.44
     240,448.22
     321,062.00
     400,172.63
     479,556.55
     560,782.50
     645,960.42
    Discounting Factor @WACC (9.895%)
     0.91
     0.83
     0.75
     0.69
     0.62
     0.57
     0.52
     0.47
     0.43
     0.39
    Present Value of Yearly increase in revenue
     -131,175.86
     -27,199.28
     49,833.82
     107,148.80
     150,014.04
     182,272.57
     206,729.21
     225,432.41
     239,879.45
     251,435.49
    Present Value of total yearly inflows
     1,254,370.66
     
    Add: Present...
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