Finance Analysis of Jones Limited(small, specialist marine engineering Coursework

Finance Analysis of Jones Limited(small, specialist marine engineering ships troupe based in Aberdeen) - Coursework ExamplePayback period for the investment of 250,000 needed to generate the earnings of 125,000Thus, entrust be250,000 125,000= 2 yearsIn another approach, Net Present Values of Profit Streams to be received in next 3 years and 5 years piece of tail be careful to see if they are positive. New investment needed is 250,000. If the same debt/equity ratio for financing the bewilder i.e 50% each is considered then debt burden will be 125,000 and that will incur 8% touch on charge.The interest charge comes to 10,000.Since the dividend declared is 16%, weighted average toll of capital employed can be taken as arithmetic mean of debt and equity for both being equal in magnitude. Thus, the cost of capital to the company for this new project is 12% amounting to 30,000 per year. The cost of capital needs to be deducted from the yearly earnings to arrive at the crystallise cash flow to the company and that amounts to 125,000-30,000= 95,000However, the net derive of the operation after interest charge comes to 125,000-10,000=115,000The depreciation of the plant and equipment is calculated on straight contestation method considering its useful sustenance of 5 years. That is calculated as 250,000/5= 50,000.Thus, net profit to the company after charging interest, and depreciation is 65,000.Development cost of 25,000 can be apportioned as per the laws towards its useful life however, in absence of the details, we right now assume it to apportion in 5 years. Thus, development cost for each year comes to ?5,000 and can be deducted from the net profit of ?65,000. Thus, actual net profit is ?60,000. However, depreciation is not creating any cash outflow though dividend on the equity is an out flow for the company. So net cash generated to the company is ?90,000 only. (Adding depreciation of ?50,000 back to the net profit and deducting dividend of ?20,000 at the rate of 16% on equity of ?125,000) Assuming call for Will Last for 3 Years The forecast is that the make will last for only 3 years due to the advancement in technology, which means net cash flow of ?90,000 will be available to company for three years only. It will be appropriate to know the present worth of the cash flow generated based on the discounting factor of 12% (equivalent to the weighted average cost of capital), and the same can be given as 90,000/1.12+ 90,000 /1.122+ 90,000/1.123 =80,357+71,747+64,060 =?216,164 . (A) Assuming Demand Lasts For Full 5 Years of Equipment Life If the demand lasts for full 5 years to make a full utilization of equipment and machinery installed then the cash flow of ?90,000 will be generated for five years until the useful life of equipment and