These are calculation's provided for both Part A and Part B calculated and to be used to
Question:
These are calculation's provided for both Part A and Part B calculated and to be used to answer the below:
Monthly Cash Budget | ||||||||||||||
2023-24 | ||||||||||||||
Before April 2023 | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Jan | Feb | Mar | Total | |
Income | ||||||||||||||
Cash Received | ||||||||||||||
Trips | ||||||||||||||
Sunrise | $ 1,500 | $ 4,500 | $ 4,500 | $ 4,500 | $ 4,500 | $ 4,500 | $ 4,500 | $ 4,500 | $ 1,500 | $ 2,000 | $ 2,000 | $ 2,000 | $ 40,500 | |
Daytime | $ 1,500 | $ 4,500 | $ 4,500 | $ 4,500 | $ 4,500 | $ 4,500 | $ 4,500 | $ 4,000 | $ 1,500 | $ 2,500 | $ 2,000 | $ 2,000 | $ 40,500 | |
Twilight | $ 1,500 | $ 4,500 | $ 4,000 | $ 4,500 | $ 4,500 | $ 4,000 | $ 4,500 | $ 4,500 | $ 2,000 | $ 2,500 | $ 2,000 | $ 2,000 | $ 40,500 | |
equity capital contribution | $ 18,000.00 | |||||||||||||
Expenses | ||||||||||||||
Cash Paid | ||||||||||||||
Tonic Tracks Bus | $ 45,000 | |||||||||||||
Vehicle refurbishment | $ 15,000 | |||||||||||||
Vehicle Registration | $ 2,400 | $ 2,400 | ||||||||||||
Vehicle Sinage | $ 800 | $ 800 | ||||||||||||
Fuel Cost | $ 540 | $ 1,620 | $ 1,560 | $ 1,620 | $ 1,620 | $ 1,560 | $ 1,620 | $ 1,560 | $ 600 | $ 840 | $ 720 | $ 720 | $ 14,580 | |
Consumables | $ 99 | $ 297 | $ 286 | $ 297 | $ 297 | $ 286 | $ 297 | $ 286 | $ 110 | $ 154 | $ 132 | $ 132 | $ 2,673 | |
Insurance | $ 1,500 | $ 1,500 | $ 1,500 | $ 1,500 | $ 1,500 | $ 6,000 | ||||||||
Vehicle Service | $ 600 | $ 600 | $ 1,200 | |||||||||||
Meals | ||||||||||||||
Breakfast | $ 450 | $ 1,350 | $ 1,350 | $ 1,350 | $ 1,350 | $ 1,300 | $ 1,350 | $ 1,300 | $ 500 | $ 700 | $ 600 | $ 600 | $ 12,200 | |
Lunch | $ 608 | $ 1,823 | $ 1,823 | $ 1,823 | $ 1,823 | $ 1,755 | $ 1,823 | $ 1,755 | $ 675 | $ 945 | $ 810 | $ 810 | $ 16,470 | |
Dinner | $ 675 | $ 2,025 | $ 2,025 | $ 2,025 | $ 2,025 | $ 1,950 | $ 2,025 | $ 1,950 | $ 750 | $ 1,050 | $ 900 | $ 900 | $ 18,300 | |
Marketing | ||||||||||||||
Magazine publications | $ 150 | $ 150 | $ 150 | $ 150 | $ 600 | |||||||||
Targeted advertising | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | $ 600 | |
Laminated Guides | $ 3,000 | |||||||||||||
$ 600 | $ 600 | |||||||||||||
Payment to Tongo National park | $ 600 | |||||||||||||
Labour Hire | ||||||||||||||
Admin Assistance | $ 300.00 | |||||||||||||
Incidental expenses | $ 300.00 | $ 300.00 | $ 300.00 | $ 300.00 | $ 300.00 | $ 300.00 | $ 300.00 | $ 300.00 | $ 300.00 | $ 300.00 | $ 300.00 | $ 300.00 | $ 3,600 | |
Loan (inclusive of interest) | 75 | 75 | 75 | 75 | 75 | 75 | 75 | 3075 | 3075 | 3075 | 3075 | 3075 | $ 15,900 | |
EOB (-10%) | $ 450 | $ 1,350 | $ 1,300 | $ 1,350 | $ 1,350 | $ 1,300 | $ 1,350 | $ 1,300 | $ 500 | $ 700 | $ 600 | $ 11,550 |
NPV analysis of the two alternatives for Tonic-tracks Pty Ltd, we need to first calculate the cash flows associated with each alternative and discount them using the company's WACC.
Let's assume the following information:
- The cost of the new bus is $200,000 for Alternative 1 and $250,000 for Alternative 2.
- The salvage value of the bus is $20,000 for Alternative 1 and $40,000 for Alternative 2 at the end of the 5-year life.
- The annual cash inflows are $60,000 for Alternative 1 and $70,000 for Alternative 2.
- The WACC for Tonic-tracks Pty Ltd is 8%.
Using this information, we can calculate the net present value (NPV) of each alternative as follows:
For Alternative 1:
Year 0: -$200,000 (initial investment) Year 1-5: $60,000 (annual cash inflows) Year 5: $20,000 (salvage value)
Discount rate: 8%
NPV = -$200,000 + $60,000*(PVIFA8%,5) + $20,000/(1+8%)^5 NPV = -$200,000 + $238,057 + $13,722 NPV = $51,779
For Alternative 2:
Year 0: -$250,000 (initial investment) Year 1-5: $70,000 (annual cash inflows) Year 5: $40,000 (salvage value)
Discount rate: 8%
NPV = -$250,000 + $70,000*(PVIFA8%,5) + $40,000/(1+8%)^5 NPV = -$250,000 + $311,861 + $23,288 NPV = $84,149
Therefore, the NPV for Alternative 1 is $51,779 and for Alternative 2 is $84,149. Since both alternatives have a positive NPV, both are viable investments. However, Alternative 2 has a higher NPV, making it the more attractive investment choice.
Other information:
Excerpts from the Balance Sheet of TTPL as on 31st March 2027 | |
Liabilities + Equity | |
Accounts Payable | $1,000 |
Accrued Expenses A/c | $2,000 |
Overdraft | $5,000 |
Bank Loan (@ 6% per annum due Dec 2030) | $10,000 |
Equity | $70,000 |
Liabilities + Equity | $88,000 |
Additional Information:
- PPTL tends to use Overdraft on a regular basis. Bank charges 12% per annum interest on it with daily compounding.
- Bank loan is at 6% per annum with monthly compounding.
- As PPTL is small business with no active trading, the book value of equity may also be considered as the market value for the purpose of calculating WACC.
- The financial databases suggests that the relevant industry for PPTL typically has an average beta of 0.85.
- Short term treasury securities are currently selling at a yield of 4% per annum. The market risk premium is presently 8%.
- Questions for analysing Part A
Consider the analysis you have done in Part A questions, and use your video to:
- Discuss both the concept behind and the process of developing the Cash Budget and the CVP analysis using your work on the Case Study on Tonic-tracks as example to illustrate these ideas. Ensure that you summarise the key assumptions/aspects/findings/limitations in your analyses.
(5 marks)
- Based on your findings, evaluate the overall financial feasibility and discuss/make recommendations to Mr Brown. These recommendations need to include:
- any improvements to the business plan based on the proposed Cash Budget and what impact would they have on the projected profit and the cash situation?
(2 marks)
- any improvements towards the viability of the business through the CVP analysis that you have conducted.
(1 mark)
- Questions for analysing Part B
Consider the analysis you have done in Part B, questions 1 and 2, and use your video to:
- Discuss both the concept behind and the process of NPV analysis using your work in the Case Study on TTPL as an example to illustrate these ideas. Ensure that you summarise the key assumptions/aspects/findings/limitations in your presentation.
(3 marks)
- Provide a recommendation to TTPL as to which of the two purchase options should be chosen. Briefly explain your reasons for this recommendation.
(2 marks)
- Mr Brown is intrigued about how the interest on loan and overdraft is accounted for in the NPV analysis if at all? Explain
(2 marks)
Further, 7 marks are allocated to the overall quality of the presentation. Please read the rubrics for details about all the criteria.
Cost Management A Strategic Emphasis
ISBN: 978-0077733773
7th edition
Authors: Edward Blocher, David Stout, Paul Juras, Gary Cokins