FINAL PROJECT

Training program:
(MBA – Masters in Business Administration)
Subject:
(Financial Management)
Send to: [email protected]

Last Name/Surname: Khawaja Muhammad Mudasar Lone

Name: Hamza Mudasar
ID/Passport: AA0418684
Address: Abu Dhabi
Region: Middle East
Country: UAE
Telephone: 00971504130323
E-mail: [email protected]
Date: 24/08/2022

ENEB Business School

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 Final Project Guidelines

Please use this format to submit your final work. The paper must follow all the
guidelines as instructed in order to obtain full credit.

Remember that our team of tutors is available for any questions regarding your
final work. You must present the final version of your work as no previous
corrections will be carried out. To submit the final project, students must use
the template below, with their answers written after each statement.

Please present your final paper according to these requirements:

• Arial 12 Font.

• Margin: 2,5.

• Line spacing: 1,5.

• All fields on the cover page must be completed.

• The document needs to be properly paged.

Your final project must be authentic and individual. Any work that has been
plagiarized or papers written by others or with the help of others are likely to be
failed. If this occurs for the second time, you will not be permitted to obtain your
degree.

Be aware that you are permitted a maximum of two submissions per subject. If
both projects do not meet the standards and fail, the student must pay the
corresponding fee to be evaluated again.

When writing your final project please use Microsoft Office, Adobe or Apache's
Open Office Writer tools (DOC, DOCX, ODT, PDF, etc.). Please consult your tutor
when using a different format. Additional information about the software will be
needed.

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Please use the following format:

ddmmyyyy_Subject_LastNameandName.pdf

Example:

11052019_StrategicManagement_ElsaMoore.pdf

The project should not exceed more than 18 pages, excluding the cover page,
bibliography and the appendix.

Evaluation Guidelines

The final work will be evaluated based on the following criteria:

• Acquired knowledge (25%): the knowledge acquired throughout the

course of the subject will be evaluated through the analysis of the
theoretical data shown in the project presented by the student.

• Development of the Subject (25 %): the interpretation of the thesis

subject by the student and its development will be evaluated in a
coherent and analytical manner.

• Final result (25%): the final evaluation is based on coherent solutions

applied to solve objectives set out in the paper. The presentation must
be conclusive and formatting must meet established parameters.

• Additional information and bibliography (25%): additional

information regarding the research and subject matter will be evaluated
and taken into consideration as a bonus. This consist of: bibliography,
visual graphics, charts, independent studies carried out by the student,
external academic sources, articles of opinion, etc. All sources, both
printed and online, must be referenced according to the APA
regulations.

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 BACKGROUND

The company ABC, L.C. manufactures some products with an average sales
price of € 25/unit, with fixed annual costs of € 110,000. The average unit variable
costs are € 5.

DEVELOP

a) At what volume of production will the threshold of profitability be reached?

b) Assuming that annual sales are estimated at 20,000 units, being the
distribution evenly over a year, on what date will the break-even point be
reached?
c) What would be the sales value or turnover corresponding to the threshold of
profitability?

2. The company Derabel, S.A. is considering buying a new machine for its
production process. This project means an initial cost of € 200,000 and the
machine is estimated to have a useful life of 5 years. The maximum productive
capacity of the machine is 200,000 units per year. However, the first year it is
expected that the activity will be 70% of the maximum installed capacity, reaching
100% from the second year.

During the first year, the unit sales price will be € 2.50, the unit variable cost €
1.50 and the fixed annual cost € 60,000, resulting in cumulative yearly increases
of 4% in the price of the product sale, 3% on variable costs and 2% on fixed costs.

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Also, it is assumed that:
• The company uses a linear depreciation system, and the residual value of the
machine is € 25,000. Besides, the sale value of the machine at the end of its
physical life will be € 30,000 that will be charged in cash.
• The nominal discount rate (kN) used by the company is 8% per year and
constant for the planned period.
• The tax rate that taxes the benefits is 25%. Taxes are paid in the period
following their accrual.
• All production is sold in the reference period.
• All income and expenses are charged and paid in cash.

With the above data, determine the Net Cash Flows after taxes of the project
described above. Calculate the net absolute return.

3. The person in charge of the finances of the company MGT, S.A. wants to know
the company's situation concerning the industrial sector to which it belongs. For
this, it has the following information regarding the industry:
a) General liquidity ratio is 1.55; the acid test is 1.20, and the ratio
between the available and the current liabilities is 0.95.
b) The debt ratio stands at 1.25. The margin on sales is 21%. The
investment rotation is 1.45 times.
c) Economic profitability is around 23%, and financial profitability is
29%
The data referred to the company (in thousands of €) are the following:

Assets Liability and Net Equity

Non-current asset (net) 170 Equity 125
Stocks of finished Reservations 25
products 45

Clients 65 External Resources 105

Banks 70 Loans 65
Supplier 30
Total Assets 350 Total Net Equity 350

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In addition, it is known that:
• Sales are € 250,000 and its direct cost of € 105,000.
• Amortization of € 70,000.
• Long-term debt generates interest at 5%, short-term bank loans at 7%,
and the departure of suppliers does not accrue any interest.
• The Corporation Tax is 25%.

Calculate the liquidity, acid test and debt ratios, and compare them with the sector
data. It also calculates the economic and financial returns, and the margin on
sales and investment rotation, even making a comparison between the company
and sector.

4. An investment requires an initial disbursement of € 2,500,000 and the duration

of the project is 3 years, in the first of which it generates a cash flow of €
1,500,000, in the second € 3,700,000 and the third € 4,100,000.
a) Calculate the Net Present Value of the investment, knowing that
inflation is 3% cumulative annually and that the required profitability
in the absence of inflation is 8%.
b) Calculate the actual internal rate of return of the previous
investment.

5. We know the following data of the company Perfilados, S.A:

a) It bought and consumed € 105,000 in raw materials for the manufacture of

its product and, on average, maintained a stock level of them in the stock
of € 9,250. Calculate the average storage period.
Calculate the average storage period.
b) The cost of its annual production is € 198,000, and the average value of
the products under development is € 11,000. Calculate the average
manufacturing period.
c) Taking into account that the company exclusively sold all its annual
production and that the average value of its stock in finished goods
warehouse was € 18,500, it calculates its average sales period.

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 d) Assuming that the company sold its products for an amount of € 290,000
and that the customers had on average a debt with the company of €
17,000, it calculates the average collection period.
e) With the data obtained in the previous points, it calculates the average
period of economic maturity of Perfilados, S.A.

6. We know the following data of an investment that the company has made:
• An initial disbursement of € 2,000,000 and generates the collections
and payments in the successive years of its duration that are shown in
the following table:
Years Collection (€) Payments (€)
1 Year 4.500.000 3.800.000
2 Year 5.500.000 4.500.000
3 Year 6.000.000 5.000.000
4 Year 4.000.000 3.200.000

Calculate the IRR of the previous project. Justify for what type of discount
this investment will be made.

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Part 1

a)
Fixed cost / Seling cost per units – variable cost
€ 110,000 / (€ 25-€ 5)
= 5,500.00 units

b)
Total units sold in a year = 20,000
Break-even units = 5,500
= 5,500/20,000*12

3 months and 9 days will be taken to reach at breakeven point

c)
Threshold profitability

Sales €500,000
Variable cost €100,000
Contribution €400,000
Fixed Cost €110,000
Net Profit €290,000
Units need to be sold out to obtain
€290,000/ (€25-€20) = 58,000 units
this profit

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 Part 2

Calculate the net absolute return

Derabel S.A Project for buying new machinery'

Initial Cost € 200,000

useful life 5 years'
Maximum production capacity (Units) 200,000
In first capacity will be 70% of installed capacity' 140,000
In second Year will be 100% 200,000
Sale Price will be € 2.50
Variable Cost € 1.50
Fixed cost € 60,000.00
Selling cost will be increased by 4%
Variable cost will be increased by 3%
Fixed cost will be increased by 2%
Tax rate 25%
Nominal Discount Rate' 8%
Residual value € 25,000.00
Deprecation value using linear depreciation system € 35,000.00

Year 0 1 2 3 4 5
Sales € 350,000.00 € 520,000.00 € 540,800.00 € 562,432.00 € 584,929.28
Less: Variable
€ 210,000.00 € 309,000.00 € 318,270.00 € 327,818.10 € 337,652.64
Cost
Contribution € 140,000.00 € 211,000.00 € 222,530.00 € 234,613.90 € 247,276.64
Less: Fixed
€ 60,000.00 € 61,200.00 € 62,424.00 € 63,672.48 € 64,945.93
Cost
Gross Profit € 80,000.00 € 149,800.00 € 160,106.00 € 170,941.42 € 182,330.71
Depreciation € 35,000.00 € 35,000.00 € 35,000.00 € 35,000.00 € 35,000.00
Operating Profit € 45,000.00 € 114,800.00 € 125,106.00 € 135,941.42 € 147,330.71
machine selling
€ 30,000.00
values
€ 45,000.00 € 114,800.00 € 125,106.00 € 135,941.42 € 177,330.71
Tax Rate 30% € 13,500.00 € 34,440.00 € 37,531.80 € 40,782.43 € 53,199.21

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Add back:
€ 35,000.00 € 35,000.00 € 35,000.00 € 35,000.00 € 35,000.00
Depreciation
Net Profit € 66,500.00 € 115,360.00 € 122,574.20 € 130,158.99 € 159,131.50
Initial Cost -€ 200,000.00
Discount Factor
1 0.93 0.86 0.79 0.74 0.68
8%
Discounted
-€ 200,000.00 € 61,574.07 € 98,902.61 € 97,303.35 € 95,670.75 € 108,302.22
cash flows
Net Cash
€ 261,753.00
flows

Derabel S.A company project, depreciation is always non-cash expense so it only

considered for tax relief then again add back in cash flows to get accurate return
value.

Working
Year 0 1 2 3 4 5
Sales 140,000.00 200,000.00 200,000.00 200,000.00 200,000.00
Sales price € 2.50 € 2.60 € 2.70 € 2.81 € 2.92
Variable cost € 1.50 € 1.55 € 1.59 € 1.64 € 1.69
Fixed cost € 60,000.00 € 61,200.00 € 62,424.00 € 63,672.48 € 64,945.93

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Part 3

Year MGT Industry ratios

Current Ratio 1.89 1.55
Quick Ratio 1.42 1.2
Debt ratio 1.13 1.25
Margin On sales 20% 21%
Investment rotation 0.78 1.45
Economic Profitability 58% 23%
Financial Profitability 14% 25%

Working
Current Assets 180
Current Liabilities 95
Inventory 45
Debt 170
Equity 150
Sales € 250,000.00
Cost of sales € 105,000.00
Gross profit € 145,000.00
Amortization' € 70,000.00
Operating Profit € 75,000.00
Short term debt € 4,550.00
Long term debt € 5,250.00
Profit before tax € 65,200.00
Tax 25% € 16,300.00
Profit after tax € 48,900.00

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Part 4
Discount factor after incorporating inflating rate
(1*0.08) *(1+0.03)
8.24%

Discount Discounted
Year Cash Flows
Factor Cash flows

0 -2,500,000.00 1 -2,500,000.00
1 1,500,000.00 0.923873 1,385,809.31
2 3,700,000.00 0.853541 3,158,102.03
3 4,100,000.00 0.788563 3,233,110.19

Discounted Cash inflow (2,500,000.00)

Discounted Cash outflow 7,815,754.71
Net Present Value 5,315,754.71

IRR

Discount Factor Discounted Cash

Year Cash Flows
20% Flows
0 -2,500,000.00 1 -2,500,000.00
1 1,500,000.00 0.833333 1,250,000.00
2 3,700,000.00 0.694444 2,569,444.44
3 4,100,000.00 0.578704 2,372,685.19

Discounted Cash outflow 6,192,129.63

Net Present Value 3,692,129.63

Working of IRR

Lower rate 8%
Higher rate 20%
Difference rate 12%
Net present value at % 5,315,754.71
Net present value at 20% 3,692,129.63
lower rate 8%
IRR 38.192%

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Part 5
a) It bought and consumed € 105,000 in raw materials for the
manufacture of its product and, on average, maintained a stock
level of them in the stock of € 9,250. Calculate the average storage
period.
Answer:
Perfilados, S.A maintain stock level of 9,250 whereas it consumes
€ 105,000 raw materials for its products. Then inventory turnover will be
0.09 and storage period will be 1 month approximately.

b) The cost of its annual production is € 198,000, and the average

value of the products under development is € 11,000. Calculate the
average manufacturing period.
Answer:
Perfilados, S.A total cost of production is 198,000 whereas average
value of products is 11,000. its average manufacturing period
(11,000/198,000 × 12) = 20 days

c) Taking into account that the company exclusively sold all its annual
production and that the average value of its stock in finished goods
warehouse was € 18,500, it calculates its average sales period.
Answer:
average sales period will be computed as cost of sales divided by
inventory multiply by 365 is 198,000 whereas
inventory value is 18,500 and its sale period will be (18,500/198,000*365
= 34 days)

d) Assuming that the company sold its products for an amount of €

290,000 and that the customers had on average a debt with the
company of € 17,000, it calculates the average collection period.
Answer:
Average collection period of Perfilados, S.A will be (290,000/17,000)
=17.06 and 365/17.06 = 21 days

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 e) With the data obtained in the previous points, it calculates the
average period of economic maturity of Perfilados, S.A.
Answer:
Average period of economic maturity will be computed as inventory in
warehouse divided by inventory sold
multiply by 365 (18,500/290,000*365 = 23 days)

Part 6
Cash flows at 15% discount factor

Initial
investment € 2,000,000.00
Discount
Factors Discounted
Cash inflow Cash Outflow Net Cash flow 15% Cash flows

Year 1 € 4,500,000.00 € 3,800,000.00 € 700,000.00 0.87 € 608,695.65

year 2 € 5,500,000.00 € 4,500,000.00 € 1,000,000.00 0.76 € 756,143.67

Year 3 € 6,000,000.00 € 5,000,000.00 € 1,000,000.00 0.66 € 657,516.23

Year 4 € 4,000,000.00 € 3,200,000.00 € 800,000.00 0.57 € 457,402.60

Total Discounted
Cash inflows € 2,479,758.15
Total Cash
Outflows € 2,000,000.00
Net discounted
Cash Flows € 479,758.15

Cash flows At 30% discount factor

Initial
investment € 2,000,000.00
Discount
Factors Discounted
Cash inflow Cash Outflow Net Cash flow 30% Cash flows

Year 1 € 4,500,000.00 € 3,800,000.00 € 700,000.00 0.77 € 538,461.54

year 2 € 5,500,000.00 € 4,500,000.00 € 1,000,000.00 0.59 € 591,715.98

Year 3 € 6,000,000.00 € 5,000,000.00 € 1,000,000.00 0.46 € 455,166.14

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Year 4 € 4,000,000.00 € 3,200,000.00 € 800,000.00 0.35 € 280,102.24
Total Discounted
Cash inflows € 1,865,445.89
Total Cash
Outflows € 2,000,000.00
Net discounted
Cash Flows € (134,554.11)

Calculations of IRR

Lower rate 15%

Higher rate 30%
Difference rate 15%
Net present value at 15% € 479,758.15
Net present value at 30% € (134,554.11)
lower rate 15%
IRR 26.715%

References

Apichaimongkol, S., 2022. The analysis of the relationship among dividends,

leverage ratios and profitability ratios of listed companies in the stock exchange:
Non-Life and life insurance sectors.
Atabaeva, G., Tashbaeva, F., Atabaev, N. and Keles, I., 2022. The liquidity
ratios and profitability of the Kyrgyz banking system. Journal of Sustainable
Business, Economics and Finance, 1(1), pp.1-22.

Schneider, D.K., McCarthy, M.G. and Austen-Jaggard, L., 2022.

Change in reporting the funded status of pensions: Impact on debt-
asset and debt-equity ratios. The Coastal Business Journal, 10(1),
p.3.

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