Describe about The Effects of Different Teaching Approaches in Introductory Financial Accounting?
|
Metric |
Year |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
|
Revenue |
487500.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
|||
|
profit margin |
40% |
-195000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
||
|
Gross Profit |
292500.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
|||
|
cost of material |
60% |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
||
|
Cost of labour |
40.00% |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
||
|
Annual Fixed Costs |
-160000.00 |
-160000.00 |
-160000.00 |
-160000.00 |
-160000.00 |
-160000.00 |
|||||
|
Delayed payment |
1000.00 |
-1500.00 |
|||||||||
|
Disposal |
-650000.00 |
650000.00 |
|||||||||
|
Lost disposal |
-5000.00 |
||||||||||
|
Working Capital |
-21937.50 |
-4875.00 |
26812.50 |
||||||||
|
Tax |
87750.00 |
117000.00 |
117000.00 |
117000.00 |
117000.00 |
117000.00 |
117000.00 |
117000.00 |
|||
|
Net CF |
-675937.50 |
-73625.00 |
-38000.00 |
-38000.00 |
-38000.00 |
-38000.00 |
-38000.00 |
122000.00 |
798812.50 |
||
|
Cum CF |
-675937.50 |
-749562.50 |
-787562.50 |
-825562.50 |
-863562.50 |
-901562.50 |
-939562.50 |
-817562.50 |
-18750.00 |
Assumptions:
It is assumed that rate of return increases with the investment done by the company.
Tax is paid after the income is calculated in the income statement .
The rate of increment in the income of the company is 40% with the rate of investment 283% as given in the data.
Cost of capital and cost of labour is divided in the ratio of 60:40
|
Discounted factor |
12.00% |
1.00 |
1.00 |
1.00 |
1.00 |
1.00 |
1.00 |
1.00 |
|||
|
PV |
117000 |
117000 |
117000 |
117000 |
117000 |
117000 |
117000 |
||||
|
NPV |
(11,10,014) |
||||||||||
|
IRR |
17% |
||||||||||
|
Payback period |
15.8 |
||||||||||
|
16.2 |
|||||||||||
|
PV |
|||||||||||
|
sales |
12000 |
2% |
|||||||||
|
12,54,965.45 |
-1% |
||||||||||
|
Gross profit |
3,90,000 |
3% |
|||||||||
|
Fixed cost |
1054984.25 |
2% |
The different techniques analysis the rate of return derived from the company after investing in the business and analyzing the investment (Berkovitch and Israel, 2013). In the case of payback period, it shows the returns derived from the business and the duration required deriving the profit and revenue. In addition, the other instrument of investment appraisal shows the accounting rate of return that shows the rate of return from the business in the accounting period rather than the investment period (Chiang, Nouri and Samanta, 2013).
On the other hand, the net present value states the present financial condition of the business. Therefore, Gunther can analyze the condition of the current business and can analyze the forecasted value of the company by going through the activities carried out currently. In the current case study, the assumption has been made with 283% rate of return from the investment of 650,000 Euros (Collins, 2015). Furthermore, it is also seen that the present value of the company can also show the different cost incurred by the company in order to carry out with the business operation.
The internal rate of return is the rate of return from the business received from the internal sources. Therefore, in the current case study it is assumed that the internal rate of return is 283% of the total revenue of the company (Damodaran, 2015).
It can be said that these techniques differ from each other because these different techniques shows different analysis of the financial position of the company. As per the evaluation of the data, it is seen that Gunther must forecast 45days as the period for yielding the rate of return from the business rather than 60 days and offer the payment to the suppliers in 20 days rather than 30, in order to speed up the process of the business (Haas and Haas, 2015).
|
PV |
||||
|
NPV |
(£11,10,014) |
|||
|
IRR |
17% |
|||
|
Payback period |
15.8 |
|||
|
16.2 |
As per the table of NPV, IRR and payback period of the data derived from Wonderpumps’ Exhibit 1 and from the case mentioned, the value for NPV, IRR and payback is shown above. As seen in the case, that Gunther have inaugurated new pump with the technology that evolved and re-engineered in the new generation (International Monetary Fund, 2014). The IRR ratio of 17% shows that company is having good rate of return from the internal and external source of returns therefore, making the ROI forecasted as 283%. Furthermore, it is also assumed that the inflation rate is also not that high that it will affect the unit production cost of the product and depreciation shall be carried out over 8 years.
|
Metric |
Year |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
|
Metric |
Year |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
|
Revenue |
487500.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
|||
|
profit margin |
40% |
-195000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
||
|
Gross Profit |
292500.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
|||
|
cost of material |
60% |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
||
|
Cost of labour |
40.00% |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
||
|
Annual Fixed Costs |
-160000.00 |
-160000.00 |
-160000.00 |
-160000.00 |
-160000.00 |
-160000.00 |
|||||
|
Delayed payment |
1000.00 |
-1500.00 |
|||||||||
|
Disposal |
-650000.00 |
650000.00 |
|||||||||
|
Lost disposal |
-5000.00 |
||||||||||
|
Working Capital |
-21937.50 |
-4875.00 |
26812.50 |
||||||||
|
EBITDA |
(£6,75,938) |
(£1,61,375) |
(£1,55,000) |
(£1,55,000) |
(£1,55,000) |
(£1,55,000) |
(£1,55,000) |
||||
|
Interest |
|||||||||||
|
Tax |
30% |
202781.25 |
48412.50 |
46500.00 |
46500.00 |
46500.00 |
46500.00 |
46500.00 |
|||
|
Depreciation |
£80,000 |
80000.00 |
80000.00 |
80000.00 |
80000.00 |
80000.00 |
80000.00 |
||||
|
PAT |
-473156.25 |
-32962.50 |
-28500.00 |
-28500.00 |
-28500.00 |
-28500.00 |
-28500.00 |
||||
|
Op Profit |
-675937.50 |
-81375.00 |
-75000.00 |
-75000.00 |
-75000.00 |
-75000.00 |
-75000.00 |
Assumptions:
The profit margin is assumed as 40% of the total revenue of the business in the economy. Furthermore, the lost disposal is ascertained a 5000 Euros as per the investment in the production is concerned (Ito and Nakano, 2015). Furthermore, the assumptions are made in the tax rate to be 30% of the gross profit of Wonderpump. The depreciations are calculated in the straight line method therefore, making the value of the machinery dissolved in the above case.
The readdressing the value of investment carried out in Wonderpump is shown in the below table with necessary changes made in the investment value and increment revenues ascertained here:
|
Metric |
Year |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
|
Metric |
Year |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|
|
Revenue |
487500.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
650000.00 |
|||
|
profit margin |
40% |
-195000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
-260000.00 |
||
|
Gross Profit |
292500.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
390000.00 |
|||
|
cost of material |
60% |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
3000.00 |
||
|
Cost of labour |
40.00% |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
2000.00 |
||
|
Annual Fixed Costs |
-160000.00 |
-160000.00 |
-160000.00 |
-160000.00 |
-160000.00 |
-160000.00 |
|||||
|
Delayed payment |
1000.00 |
-1500.00 |
|||||||||
|
Disposal |
-650000.00 |
650000.00 |
|||||||||
|
Lost disposal |
-5000.00 |
||||||||||
|
Working Capital |
-21937.50 |
-4875.00 |
26812.50 |
||||||||
|
EBITDA |
(£6,75,938) |
(£1,61,375) |
(£1,55,000) |
(£1,55,000) |
(£1,55,000) |
(£1,55,000) |
(£1,55,000) |
||||
The re-financing criterion of the company is ascertained in the assuming the changes to be 8 to 10% in the increase in the capital invested and in the returns yield (Kieso, Weygandt and Warfield, 2012). Furthermore, the EBITDA of the company need to be assumed in the above case while calculating the forecasted values of the company’s liabilities and assets including the investment made. Furthermore, it is also seen that most of the value have changed due to refinancing of the structure of the capital. Gunther and Jacques ascertainment for the future financing status of the company need to assume the changes in the rate of with the changes made in the investment and the revenue derived from the business.
|
Sensitivity analysis |
|||||
|
Sales |
|||||
|
-10% |
0% |
10% |
|||
|
585000.00 |
650000.00 |
715000.00 |
|||
|
34% |
845.00 |
126470.00 |
254170.00 |
||
|
36% |
35124.00 |
54748.00 |
187514.00 |
||
|
38% |
59874.00 |
32147.00 |
132414.00 |
||
|
40% |
84251.00 |
31254.00 |
121547.00 |
||
|
42% |
114574.00 |
40547.00 |
74158.00 |
||
|
44% |
124565.00 |
65214.00 |
39470.00 |
||
As per the sensitivity analysis, the value provided by Gunther and Jacques conversation is applied in the calculation and the changes in the value is ascertained. Therefore, in such cases, the valuation of the machinery and the assets of the company shall vary (Maali and Jaara, 2014).
There are several features of debt and equity financing and its comparison to AGT’s capital structure. It can be elaborated as:
Equity Financing of AGT capital’s Structure
Having a budgetary authority consider you a check may show up like the perfect answer in case you have to expand your business yet would lean toward not to handle commitment (Nuryanah and Islam, 2015). In light of present circumstances, it’s money without the trouble of repayment or premium. In any case, the dollars go with tremendous strings annexed: You must give the advantages to the budgetary examiner or favoured delivery person monetary authority.
It’s less unsafe than a credit in light of the way that you don’t have to pay it back, and it’s a not too bad decision if you can’t remain to handle commitment. You exploit the theorist’s framework, which may add more legitimacy to your business. Monetary authorities take a whole deal point of view, and most don’t expect an entry on their theory immediately. The company have to channel advantages into credit repayment. Wonderpump will have more cash close by for developing the business (Palmer, Barber and Zhou, 2015).
There’s no need to pay back the endeavour if the business misfires. It may oblige gives back that could be more than the rate you would pay for a bank advance. The theorist will oblige some obligation regarding association and a rate of the advantages. You might not have any longing to surrender this kind of control (Ross, Westerfield and Jordan, 2014). You should counsel with theorists before making tremendous (or even timetable) decisions – and you may vary with your budgetary experts. Because of antagonistic clashes with budgetary experts, you may need to exchange for chilly hard coin your section of the business and grant the theorists to run the association without you. It obliges a few genuine vitality and push to find the privilege money related pro for your association.
Debt financing of Wonderpump
The business relationship with a bank that credits you money is out and out not the same as a development from a budgetary expert – and obliges no convincing motivation to surrender a bit of your association. In any case, if you handle an overabundance of commitment, it’s a move that can cover advancement (Velez-Pareja, 2015). The bank or advancing establishment, (for instance, the Small Business Administration) has nothing to do with the way you run your association and does not have any proprietorship in your business. The business relationship closes once the money is paid back as per the situation in the current case of AGT and Wonderpumps. The energy on the development is obligation deductible. Advances can be transient or whole deal.
Primary and pastime are known figures you can orchestrate in a budgetary arrangement (gave that you don’t assume a variable rate acknowledgment). Money must pay back within a changed measure of time (Warren, Reeve and Duchac, 2013). If the company emphasizes upon a ton on commitment and have salary issues, you will encounter trouble paying the development back of AGT. If Gunther pass on an unreasonable measure of commitment you will be seen as “high peril” by potential theorists – which will bind your ability to raise capital by quality financing later on. Commitment financing can leave the business frail in the midst of cruel times when arrangements take a dive. Commitment can make it troublesome for a business to create as a consequence of the high cost of repaying the credit (Osborne, 2015).
Assets of the business can be held as insurance to the bank. Likewise, the proprietor of the association is frequently expected to before long surety repayment of the development. Most associations settle on a blend of both quality and commitment financing to address their issues when growing a business (Nuryanah and Islam, 2015). The two sorts of financing together can work honourably to reduce the disadvantages of each. The right extent will vacillate as showed by your kind of business, pay, advantages and the measure of money you need to broaden your business of AGT.
References List
Berk, J. and DeMarzo, P. (2015). Corporate finance.
Berkovitch, E. and Israel, R. (2013). Why the NPV Criterion does not Maximize NPV. Rev. Financ. Stud., 17(1), pp.239-255.
Brealey, R., Myers, S. and Allen, F. (2014). Principles of corporate finance. New York: McGraw-Hill Irwin.
Chiang, B., Nouri, H. and Samanta, S. (2013). The Effects of Different Teaching Approaches in Introductory Financial Accounting. Accounting Education, 23(1), pp.42-53.
Collins, D. (2015). Advanced financial corporate accounting.
Damodaran, A. (2015). Applied corporate finance.
Haas, J. and Haas, J. (2015). Corporate finance.
International Monetary Fund, (2014). Finance and Development, June 2014. Finance & Development, 51(2), p.1.
Ito, K. and Nakano, M. (2015). International perspectives on accounting and corporate behavior.
Kieso, D., Weygandt, J. and Warfield, T. (2012). Intermediate accounting. Hoboken, NJ: Wiley.
Maali, B. and Jaara, O. (2014). Reality and Accounting: The Case for Interpretive Accounting Research. ijafr, 4(1).
Nuryanah, S. and Islam, S. (2015). Corporate governance and financial management.
Osborne, M. (2015). A Resolution to the NPV – IRR Debate?. SSRN Electronic Journal.
Palmer, D., Barber, B. and Zhou, X. (2015). The Finance Conception of Control–“The Theory That Ate New York?” Reply to Fligstein. American Sociological Review, 60(4), p.504.
Ross, S., Westerfield, R. and Jordan, B. (2014). Essentials of corporate finance. New York, NY: McGraw-Hill Irwin.
Velez-Pareja, I. (2015). 3 Decision Methods: Npv, Irr and Others. SSRN Electronic Journal.
Warren, C., Reeve, J. and Duchac, J. (2013). Corporate financial accounting. Mason, Ohio: South-Western Cenage Learning.
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