JWI 530: Financial Management I

Academic Submissions and Evaluations

Assignment 2: Management Accounting Application

Due Week 10, Day 7 (Weight: 22.5%)

In this assignment you will demonstrate your understanding of capital investment techniques by evaluating the following three case studies.
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Case Analysis 1 – Weight 20% of total assignment

You work for a small, local telecommunications company. In five years, the company plans to undertake a major upgrade to its servers and other IT infrastructure. …show more content…

Our PBP is therefore 2 years and 4 months.
Discounted PBP
Year Amount PVIF$1=1/(1+r )^n Discounted amount accumulated
1 65,000 1.1 59,090.91 59,090.91
2 65,000 1.21 53,719.00 112,809.91
3 65,000 1.331 48,835.46 161,645.37
The PBP is 150,000-112,809.91=37,190.09
Assuming the 48,835.46 was accrued evenly,37,190.09/4069.62=9.14
The PBP=2 years and 9.1 months.

Net Present value
Year amount PVIF$1=1/(1+r)^n discounted amount accumulated
0 -150,000 1 -150,000 -150,000
1 65,000 1.1 59,090.91 59,090.91
2 65,000 1.21 53,719.00 112,809.91
3 65,000 1.331 48,835.46 161,645.37
NPV= -150,000+161,645.37=11,645.37

Internal Rate of Return
This is the rate at which NPV=0
This rate in this scenario is 14%
See excel for calculations

Part B. Saving Growth Scenario: BASE CASE but with 10% compounded annual savings growth in years 2 & 3.
Cash flows for the poroject
Year 0 -150,000
Year 1 65,000
Year 2 78,650
Year 3 86,515
Nominal PBP
Year amount accumulative
1 65,000 65,000
2 78,650 143,650
3 86,515 230,165
To get the exact PBP we calculate cumulative earnings for year 3
86,515/12=7,209.58
So the PBP is two years and approximately 1 month

Disocunted PBP
Year amount discounting factor amount cumulative
1 65,000 1.1 59,090.91 59,090.91
2 78,650 1.21 65,000 124,090.91
3 86,515 1.331 65,000 189,090.91
The