Strategic financial management
It looks at the operations of an enterprise and predicts the current and future outcomes. Therefore, it can be said to help a business keep is aspirations, strategy and products services in the right setting. It also determines an enterprise sustainable grown and plans or strategizes on how to achieve that and more. Thus, for any enterprise that has goal to have an advantage over their competition strategic finance planning and management is the first line of defense. The other is when a business needs to determine which projects they should purse with the highest chance of sustainable success. There is also $140,000 working capital to be used immediately. This amount has been taken from the company’s retained profits and will be repaid at the end of the project.
Cash inflows are expected to be $650,000 in year 1 rising at a rate of 7. 5% per annum for years 2 to 5 inclusive. Variable costs in year 1 are expected to be $27,000 per annum and are expected to rise at 6. To undertake Project Wolf, factory space which is currently generating rental income will need to be used for the project. The rental income, which would not have been expected to change over the five-year period, is $75,000 per annum. This project will take the company in a new direction appealing to a different type of customer. Additional financial information: Corporation tax is paid at a rate of 20% and tax is payable one year in arrears. The weighted average cost of capital is 10% and, unless otherwise stated, cash flows occur at the end of the year to which they relate.
Therefore, in this report it will be the first detailed calculation done to between Aspire project and Wolf project, which has the best current value of the future cash flows. On the other hand, internal rate of return is also used to determine the value of the project’s cash flow. Where it if falls below zero then the project is not profitable for the company but when it is above zero then it is the right choice to make (Patel, 2018). Thus, allowing the proof of sustainability and return in investment for the company. Therefore, when the two are joined they provide an answer without a doubt of which project is the best to undertake. it is the percentage of the net present value of the cumulative cash flows and discounts of a project.
Which can be both positive or negative, but when its negative that project is preferable. It is also a value that quals to zero (Hagemann, n. d. In most cases it does not always equate to the net profit value. Project Project Aspire Project Wolf Payback period 3. A. Analysis and evaluation. On this section is the analysis and evaluation of the investment project using the findings above. Also, a recommendation regarding which project is more lucrative to undertake. Justification of the choice of project can be done by explaining the three methods used to calculate the values in the tables. It also touches on the appraisal techniques used for the above task. The selection of the project is done from calculating detailed figure that aid in projecting the possible future and lower capital use for maximum profit.
The first technique is the results on the net present value where the Aspire project dominated the Wolf project by show a much more positive value (Capital Investment, 2018). It illustrates the cash inflow and cash outflow had a difference of almost a hundred thousand dollars. And utilize less capital and resources compared to the project Wolf. Therefore. The techniques used was positive in that it shoed the promise of the project wolf and that internal rate of return can at times not be the determinant. Additionally, the last technique used determined the payback period with also showed a difference but not a big gap. In this case the Aspire project came out ahead which was the determining technique which project is more lucrative to undertake (Irfanullah, 2013).
These are factors AYR Co. should consider before making the final decision it also includes information needed to make a solid decision (Woodcock, 2003). The first consideration is the company culture. It can be defined as the persona of the organization, its DNA which consists of values, ethics and many more like goals set by the employees. Therefore, when deciding it is important to consider how the culture already established by project Aspire connects to AYR Co. The political climate of a nation heavily influences the economy of the nation at the time (Patel, 2018). Therefore, when a project is in a political unstable location they can fail, and the projections done would obsolete and misleading. It is also advisable to asses the state of the economy and make long term projection of it as it can also define profitability.
There are many economies and currencies that have failed and brought down many companies and businesses along with them. Therefore, in the case of AYR Co. managers are deciding (Patel, 2018). Workforce should be on top of their list and all the needs of the personnel should considered from their salaries to their work ethics and shifts. Therefore, when it comes to employees the company should make the consideration of where to source them without any conflict of interest if they are from the AYR Co. They should also consider industrial competition before choosing project and strategies on how to overcome it if any is found. Sources of finance On this section the report will focus on the sources of finances AYR Co.
There are other ways of raising funds for the project without selling ownership and the common one is long term debt. It involves requesting loans from banks to fund the projects. Bank loans are riskier and have interest even when it is fixed, but when funds are raised from investors and selling share there is no need to pay back. However, AYR Co. has two options and they are both good enough. The results of the report and appraisal gave a comprehensive look into strategic finance management and its complexities. Thus, the paper investigated project selection and calculations that determine the most optimal project to undertake. The first calculation was NPV, IRR and payback period. It also analyzed the investment options and discussed the sources of finance for the projects.
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