FIN20014 Financial Management - Cash Flow Analysis of SONICJET Company Assignment Help

Introduction

A cash flow analysis will also be used to analyse the specifics of comparison between V-Powerboat and T-Powerboat projects in order to determine the viability of mutually exclusive projects. Analysis of project cash in and outflows, estimation of potential funds for capital investment and of capital expenditure required for the venture to provide the expected investment return. The study reflects the method of capital budgeting in which spending is calculated and measured, which is intended to be of value for the company. The financial performance of the two projects was calculated by using the outcomes of the capital budgeting methodologies using both the necessary return rate, the cross-cutting rate and all the considerations which could help to achieve final decision-making. The study concentrates on ventures ' earning potential and provides a detailed overview of development strengths and weaknesses.

Findings

Quantitative 

The analysis will include estimating cash flow and increasing the efficiency of the cash to illustrate the quantitative results of the project

We will first analyse the initial investment capital for the plant and equipment to begin the study. In the past year, SONICJET spent $400,000 in V-powerboat design. A number of distributors received an additional 150,000 $for promotion of the boat Though the expenses for the plan are paid, costs are perceived to be sunk costs as they were accrued over the last year and are not an initial cost. 

In Table 1 we can see that the company SONICJET would need a $12,000,000 manufacturing plant, including an estimated $200,000 shipping and installation expense, both for V-boat and T-boat projects. The initial investment of $200,000 in stock will also include net working capital (NWC); the volume of debtor-linked capital estimated will equate to $190,000, compared with $40,000 in lenders, bringing the total of NWC to $350,000 until its eventual recovery at the end of the project life. A total investment of $12,650,000 would be required

In Table 2 we can see that the plant is five years of economic existence and is valued at $4,500,000. The plant is leased. For financial reasons, the project will be depreciated at a 15% straight-line rate the yearly depreciation for the plant will be 1,830,000 cumulating it up to 9,150,000 for the economic life of the plant. When we look at the loss after the plant's financial life, after its sale there will be a benefit of 4,500,000, which represents a total gain of 1,450,000 due to the book value being 3,050,000. According to the figures in Table 2, a 30 percent tax on plant salvage will be charged at $435,000. Whenever the salvage value is greater than the book value tax is applicable to gain obtained from salvage value.