This 10 page paper examines a case study supplied by the student. A company can make one investment and has two choices; Corp A and Corp B. The paper examines the potential of the two projects by calculating projects income statement and cash flows and uses tools such as net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), payback period and profitability index to assess each investment before reaching a reasoned decision. The bibliography cites 5 sources.
Name of Research Paper File: TS14_TEcapbudAB.rtf
Unformatted Sample Text from the Research Paper:
use of financial analysis and projections will be used to compare the projects before a recommendation is made. a. Income Statements Both companies have had their incomes projected forwards for
the next five years. For Corp. A there is the assumption that income will increased by 12.5% per annum, expenses will increase by 18% per annum and deprecation is at
7,500 per annum on a straight line basis1. For Corp B the income is projected at increasing at 10% and the expenses increasing at 12% with straight line deprecation
at 13,500 per annum. Corp A Year 1 Year 2 Year 3 Year 4 Year 5 Income 120,000 135,000 151,875 170,859 192,217 Expenses 25,000 29,500 34,810 41,076 48,469
Depreciation 7,500 7,500 7,500 7,500 7,500 Net Income before tax 87,500 98,000 109,565 122,284 136,247 Tax 26,250 29,400 32,870 36,685 40,874 Net Income after tax 61,250 68,600 76,696 85,599 95,373
Corp B Year 1 Year 2 Year 3 Year 4 Year 5 Income 167,500 184,250 202,675 222,943 245,237 Expenses 67,000 75,040 84,045 94,130 105,426 Depreciation 13,500 13,500 13,500 13,500
13,500 Net Income before tax 87,000 95,710 105,130 115,312 126,311 Tax 26,100 28,713 31,539 34,594 37,893 Net Income after tax 60,900 66,997 73,591 80,719 88,418 b. Cash Flow Statements
Income statements are important, but they may also conceal the way in which an investment takes place in terms of the cash flow. Using the income statement we can look
at cash flows and a cash flow statement. Here we look at the cash flows. The investment is assumed to take pace at the beginning of year 1, so there
is no need to account for depreciation, and tax has to be paid out, so we are assuming it is paid in the same year of the income it relates