HND SQA 财政预算outcome4 答案

1、IntroductionIm going to calculate some periods in order to help Trical Plc make correct decision about the new investment. These periods include: the pay back period, ARR and NPV. Assumptionsl There is no taxation and inflation, by which the accounting statements and the value of money would be effe

2、cted.l The appropriate discount rate is known in able to calculate easier.l The company has enough money to pay the total cost in order to avoid the chain broken of capital happen.The payback periodYearAnnual cash flowCumulative cash flow0(1000,000)(1000,000)1160,000(840,000)2160,000(680,000)3320,00

3、0(360,000)4320,000(40,000)5320,000280,000Net cash benefit280,000280,000ARRProjectCapital Cost1000,000Profit in year 1160,000Profit in year 2160,000Profit in year 3320,000Profit in year 4320,000Profit in year 5320,000Total profit after depreciation256,000256000/5Average profit51200*25.6%NPV The calcu

4、lation of net present value at 10%yearCash Flowpresent value factor at 10%present value0(1,000,000)1.000(1,000,000)1160,0000.909145,4402160,0000.826132,1603320,0000.751240,3204320,0000.683218,5605320,0000.621198,720935,200Net Present Value (64,800)AnalysisPayback is the simplest method to appraise i

5、f the investment and project will make profit. Payback measures the number of years it is expected to take to recover the cost of the original investment. The shortest payback period of investment or project will be chosen. However, payback period is based on the accounting statements, inflation may

6、 be ignored in this method. The Tricol Plc would recover the initial fixed investment within 5 years, which means the company should accept the plan.ARR is another traditional investment and project appraisal method, according to the average annual profits to the capital investment formed as percent

7、age to know if the investment is worthwhile. However the time value of money will be ignored and length of project lift and size of project not specifically considered in ARR. The figure of ARR of Tricol Plc is 25.6%.NPV method calculates the cash inflow and outflows present value. And the inflow sh

8、ould greater than the outflow because of the existing of resent value discount. Net present value provides an objective basis for evaluating and selecting investment projects. And it takes account of both magnitude and timing of expected cash flows in each period of a projects life. According to the

9、 calculate above, the Tricol Plcs NPV is (64,800), less than 0. So the company should reject the business plan.ConclusionI suggest that the Tricol Plc use the payback period, although the NPV is less than 0, but the company can pay their investment back in 5 years, which is very efficiency if its a long-term business.Otherwise, the management of board should consider other factors of the business, for example the inflation in the country, the government pol