The analysis by Steel Tube division of Engineering Products Plc Assignment

The epitome by Steel Tube division of Engineering Products Plc accountant - Assignment Example rivet of discussion in this paper is a financial analyst for Steel Tube division of Engineering Products Plc named Roger Davis. He is having a tough time win over the management for a project proposal. The analysis by his accountant and the redundant information obtained from early(a) sources has added to his woes. Roger Davis needs to convince his managing director about the viability of a new-fangled proposal for computer numerically controlled (CNC) milling machine. The MD is not ready to sp repeal money on the project unless it can start yielding meshing within 3 years. However, the accountants analysis shows an overall loss for the project over the next 4 years. It wont be prudent to expect much from the project after this period. Roger has collected a lot of additional information as well. But he has not been able to guarantee the viability of the project with given information . Most of the information available to Roger seems relevant at first sight. However, the consultant charges of 18,000 have already been paid by the company. Hence, they would not shake off much difference to the investment decision. Also acquiring opening stock at the beginning of the year rather than considering the same at year end would have minimal impact on the decision (the impact due to time value of money would be very small as compared to other numbers) and hence should be neglected for analysis. In addition there are pieces of information which don not directly reflect the performance of the project and must(prenominal) be excluded for a fair evaluation. They would be discussed in greater detail in section 5. 4. Cash flow Analysis using all additional information The accountants analysis was quite limited. Therefore, additional information collected by Roger needs to be incorporated in the financial analysis (Johnson, Derek). The same has been done in Table 4.1. The meth odology for the same is discussed here. Table 4.1 Cash Flow Analysis using Accountants Analysis and additive Information Year 0 1 2 3 4 Total Sales 400.00 600.00 800.00 600.00 Cost of Sales 180.00 300.00 380.00 300.00 Labour Cost 80.00 120.00 120.00 80.00 Revised some other production expenses 64.00 66.00 68.00 84.00 Depreciation 40.00 40.00 40.00 40.00 Administrative Overhead 54.00 76.00 74.00 74.00 Interest on loans 22.00 22.00 22.00 22.00 Total Cost 440.00 624.00 704.00 600.00 PBT -40.00 -24.00 96.00 0.00 PBDT 0.00 16.00 136.00 40.00 Depreciation for Tax point 60.00 45.00 33.75 25.31 Cumulative Depreciation for Tax purpose 60.00 105.00 138.75 164.06 PBT (for Tax purpose) -60.00 -29.00 102.25 14.69 PAT (for Tax purpose) -42.00 -20.30 71.58 10.28 Net profit (for company) -62.00 -25.30 77.83 24.97 Scrap sales 20.00 0.00 0.00 0.00 20.00 Cash benefits due to sell-off of existing machine 0.00 18.00 18.00 18.00 18.00 Additional advertising expenses -40.00 -8.00 -8.00 -8.00 -8.00 Consultant expenses -18.00 0.00 0.00 0.00 0.00 step-down in sales of competing products -60.00 -60.00 -60.00 -60.00 Net cash flow -38.00 -112.00 -75.30 27.83 -5.03