Strategic and Financial Decision-making (acfi5022) Submitted to: Josphat Njuguna Omanga

Strategic and Financial Decision-making (ACFI5022)

Submitted to: Josphat Njuguna Omanga
Submitted by: P17061489

Task 1


Calculation of cost of capital
Cost of equity

Year	Total Dividends (£)	Formula	Growth rate
		value at the end / value at the beginning 1¤100
2014	488,000
2015	567,000		16.19%
2016	675,000		19.05%
2017	864,000		28.00%
2018	927,000		7.29%
2019	1,102,000		18.88%
2020	1,181,000		7.17%
	Average growth rate		16.10%
Capital Budgeting decision
Year	1		2	3	4	5
Year	2021		2022	2023	2024	2025
Sales units£	90000		99000	108900	119790	60000
Price per unit£	156		162.24	168.73	175.48	182.5
Sales Revenue£	14040000		16061760	18374697	21020749	10950000
Direct Material cost per unit£	75		79.5	84.27	89.33	94.69
Fixed production cost per unit£	45		47.25	49.61	52.09	54.7
Total cost£	120		126.75	133.88	141.42	149.39
Total production cost£	10800000		12548250	14579532	16940702	8963400
Advertisement cost£	500000		200000	200000	200000	200000
Total cost	11300000		12748250	14779532	17140702	9163400
EBIT£	2740000		3313510	3595165	3880047.4	1786600
(-) Taxes 25%	685000		828377.5	898712.3	969995.65	446715.73
Operating cash flow£	2,055,000		2,485,133	2,696,453	2,910,052	1,339,884
Calculation of Net Present value
Year	Cash flow£		Pv Factor 19.40%	PV
0	-7500000		1	-7500000
1	2,055,000		0.8375	1721063
2	2,485,133		0.7014	1743072
3	2,696,453		0.5875	1584166
4	2,910,052		0.492	1431746
5	1,339,884		0.4121	552166.2
			NPV	-467787
Calculating IRR
Year	Cash flow £		PV Factor 16%	PV
0	-7500000		1	-7500000
1	2055000		0.8621	1771616
2	2485132.5		0.7432	1846950
3	2696453		0.6407	1727617
4	2910052		0.5523	1607222
5	1339884		0.4761	637918.8
			NPV	91323.9

As analyzing the data, the company wants to introduce a new product a new electronic notebook named as ´Supreme A10’
Task 2
According to Claire Toogood, the HRM manager´s statement, it has been that found that it is easy to evaluate the projects by using payback and Accounting Rate of Return methodologies.
According to a Woodruff, J., 2019, the payback methods are very easy to evaluate the projects as they are very easily calculated. However, their many limitations, drawbacks or disadvantages, advantages, and some other factors which have been not ignored.