Finance

Unit Two MANAGING FINANCIAL RESOURCES AND DECISIONS Assignment 3 Investment assessment techniques, Unit costs and Budget analysis Date 17/05/2010 denomination Count 5007 Managing Financial Resources and Decisions Assignment Three Task One XYZ Ltd To countenance me to apprise XYZ Ltd whether to accept the project to invest in new plant and machinery, I would first have to calculate the payback stream. I have done this below:- (a) Year| capitalflow| Cumulative Cash inflows| 0 - (1/1/06)| (95,000)| | 1 - (31/12/06)| 15,000| 15,000| 2 - (31/12/07)| 25,000| 40,000| 3 - (31/12/08)| 35,000| 75,000| 4 - (31/12/09)| 30,000| 105,000| 5 - (31/12/10)| 30,000| 135,000| As you can see from the above table the capital outflow will not be repaid by the hold on of year 3, therefore you would require £20,000 from year 4s cash inflow to repay the capital exp dyingiture. This is known as the payback period. The payback period gives you a clear peculiarity of when you will receive your initial capital expenditure back. The bimestrial the period of time it takes to get your money back the more uncertain your forecast may be, whilst the shorter the period the more immaculate you are. The shorter period allows for more certainty.

Payback is only concerned with cashflow. To allow the managers of XYZ Ltd to understand the payback period it would be best to explain some of the following:- * Year 0 is the conventional course to say the start of year 1. Year 1,2,3,etc indicate the end of the year 1,2,3, etc. * Assume that the cashflows will be received at the end of every year, whilst technically this may not be true, it does make the calculation of payback simpler to understand * Negative cashflows are shown in brackets and positive ones are not. * Depreciation is not shown as this is not a cashflow They should also understand the advantages and disadvantages of using the payback period to forecast whether a... If you want to get a full essay, frame it on our website: Ordercustompaper.com

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