Outlays are securities that are used to make purchases; or to improve an asset that is already held and that will increase the value of Caledonia Products for a length of time. Caledonia Products has allocated $100,000.00 to get production started for the company; $7,900,000.00 to purchase a new operating facility along with equipment. The cost of equipment and plant, plus shipping and installation charges, plus net working capital equals a project’s initial outlay. The cost for shipping and installation is an additional $100,000.00 resulting in $8,100,000.00 in initial cash flow. These are the main examples of capital outlay.
The company needs to identify what is the contributing factor in loss sales and revenue. Internal and External surveys should be done to identify the contributing factor for loss sales and revenue and the key will be to pay attention to details to locate the trouble indicators. Once the company has identified their strength and weakness they will need to identify opportunity for sales and revenue increase for the future. Some of the key questions to identify areas of opportunity are; what are the trends patterns of the customer, what changes in technology will affect this market, what affect the economy
This figure definitely could be different for different customers. 4. Suppose one of GP Manufacturing’s executives typically uses the payback as a primary capital budgeting decision tool and wants some payback information. a. What is the project’s payback period?
We will calculate some ratio’s to understand the financial position of the company, before we start with an analysis of the risks. The variables about the firm’s environment, the governance, the strategy, financial structure and operations are essential the firm. Current financial situation Liquidity ratios: Year Current ratio= Current Assets/Current Liabilities Quick ratio= Cash+Accounts Receivables+Other Assets/Current Liabilities Cash ratio= Cash+Other Assets/Current Liabilites 1989 39254/22733=1,727 5621+22601+3298/22733=1,336 5621+2139/22733=0,341 1990 33196/19233=1,726 3053+20119+3298/19233=1,376 3053+3298/19233=0,330 1991 36204/21998=1,646 4032+17736+4628/21998=1,200 4032+4628/21998=0,394 1992 41349/27291=1,515 11327+14195+5220/27291=1,126 11327+5220/27291=0,606 1993 50192/18147=2,766 17272+17596+5220/18147=2,209 17272+5220/18147=1,239 Current ratio: is the ration to measure whether the firm has enough resources to pay its debt over the next 12 months. We can see that the current ratio is increasing from 1989 till 1993. Quick ratio: is the ratio to ascertain whether a company’s short-term assets are readily available to pay off its short-term liabilities.
Providing financial report analysis. 9. Finally, generating a conclusion and recommendation from cited works. As we emerge from a financial crisis, when organizations had become reluctant to eating “into their cash pile”, we must now be prepared to tell a board of directors “here’s what we’re going to spend on new markets” as David Axson – executive director of Accenture’s Finance and Enterprise Performance consulting group puts it. We will also be prepared, upon full evaluation of all identified factors, to pull the plug on this R&D recommendation if it cannot pay off.
Some research will include the financial status of a company. Other times, we will be reviewing the company strategy, mission, vision, and values. Also, competition is vital for the company research. Lastly, a strategic analysis will be performed along with a recommendation usually. So, today we will be doing a lot of that.
There are different methods of cost estimation. In Ka-Pow project we have used the bottom up estimating. In bottom up estimate find out the cost of the work packages and then add them up to get the cost for the entire project. It is important to estimate the cost correctly otherwise it will put the project at a risk. It is very important to involve the SMEs in the cost planning also to get the accurate estimate for the cost.
The $50 million project, although would double the company’s debt, but would also greatly increase its customer concentration. Q2. HPL had not initiated a project of such ($50 million) magnitude in over a decade. The expansion of the business will have a significant impact in the company. We can consider three metrics to analyze it: long-term debt, revenue and book value.
Explain the rationale for using the IRR to evaluate capital investment projects. Could the IRR for this project differ for GP Manufacturing versus for another customer? IRR= 14.1% (cell B70) IRR is used to decide whether investors should make long term investments. IRR depends on how much a company actually makes so it will be different for everyone 4. Suppose one of GP Manufacturing’s executives typically uses the payback as a primary capital budgeting decision tool and wants some payback information.
First of all it is commonly known that a business is confronted every day with numerous issues that have to end up with a decision. For instance “whether to make components itself or buy them in, whether to accept or reject an order, whether to further process a product or sell it at its split-off point or how to best use resources when one or more of them becomes scarce.” (Docstoc, 2010). Nevertheless, in order a company to go ahead with the right decisions, it must take into account the relevant costs. Relevant costs are regarded as those which will be generated in the future. Subsequently, in most cases fixed costs are considered to be disrelated with short term decision making, on the grounds that whichever option will be choosed, the costs will remain constant.