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 “Measuring and reporting cash flow

“Measuring and reporting cash flows” and Chapter 14 “Making capital investment decisions”, of the textbook “Accounting and finance, an introduction”. “Measuring and reporting cash flows” and Chapter 14 “Making capital investment decisions”, of the textbook “Accounting and finance, an introduction”.Cut-off date: Check LMSPlagiarism: It’s imperative that you write your answer using your own words. Plagiarism will be penalized depending on its severity and according to AOU plagiarism policy.Format and presentation: you are expected to attach the pt3 form and present your work, calculations and interpretations neatly. Failing to do so could result in the deduction of up to 4 marks of your total TMA mark.Word count:your answer is expected to be within the specified word count range. Not adhering to specified word count could result in the deduction of up to 4 marks of your total TMA mark. Referencing:  You are expected to use the Harvard referencing style for in-text referencing and list of reference at the end. Failing to do so could result in the deduction of up to 4 marks of your total TMA mark.E-library:  You are expected to use E-library sources to support your answers. A minimum of 3 sources is required. Failing to do so could result in the deduction of up to 4 marks of your total TMA mark.
TMA: Making Capital Investment Decisions (100 marks, 1000-1500 words)At the beginning of 2017, Jason went into retirement after serving 40 years at one of the local companies in his home town. He received a remuneration of $77,500 upon his retirement with which he is hoping to achieve his long time ambition, to invest into his own private business. He is in front of three different options:• Option 1: to start a new company (TOYEE) that manufactures toy models. Jason has carried out some research that shows there to be a market for these toy models. This will require investment in a machine that would cost $40,000, payable immediately. Sales have been estimated for the next five years. At the end of that time, Jason had estimated that the machine could be sold for $8,500.Inflows and outflows from sales of the toy models would be expected to be: Time Estimated cash flowsYear 0 -40,000Year 1 Operating Profit Before Depreciation 8,500Year 2 Operating Profit Before Depreciation 11,700Year 3 Operating Profit Before Depreciation 15,950Year 4 Operating Profit Before Depreciation 16,400Year 5 Operating Profit Before Depreciation 15,200year 5 (Salvage Value) 8,500
• Option 2: to buy 100% of the shares of an established business Revell Inc. This is well-known brand name today used by two distinct manufacturers of scale plastic models. The total value of Revell Inc. is $37,500• Option 3: to buy 100% of the shares of an established business Tamiyah Inc. This is a manufacturer of plastic model kits, radio controlled cars, battery and solar powered educational models. The total value of Tamiyah Inc. is $37,500.Based on the financial information collected for Revell Inc. and Tamiyah Inc., Jason with help of a financial Advisor came up with the following forecasts for the next5 years. The rate of return is estimated at 5%.Requirements:1. Jason has decided to start TOYEE irrespective of the other investments but still needs to analyze the viability of buying the machine. Therefore, to advise Jason on this matter, you are required to calculate the Accounting Rate of Return (ARR),thePayback, NPV and IRR to provide the financial assistance for Jason. Advise whether or not Jason should start this business.
2. To make his choice between Tamiyah and Revell, Jason needs to make a capital investment decision. Therefore he will need to analyze the two options. He needs your expertise for this task. You are required to do the following:a. Prepare a 5 year projected statement of cash flow using the indirect method for Revell Inc.b. Using the projected cash flows from part (a), calculate the Payback period,Net Present Value and Internal Rate of Return (IRR) for Tamiyah Inc. and Revell Inc.Since these projects are mutually exclusive, based on your analysis, you need to recommend the best option for Jason.3. Research indicates that the IRR method is extremely popular even though it has shortcomings when compared to the NPV method. Why might managers prefer to use IRR rather than NPV when carrying out discounted cash flow evaluations? Use references from the E-library to answer this question.(Note: you can use excel to only calculate IRR and you must show all steps of your answers). Profit and Loss Statement for Revell Inc. Actual ForecastsItem 2017 2018 2019 2020 2021 2022Sales 28,857 31,944 33,541 35,218 36,979 38,282Cost of Sales -10,406 -11,374 -11,943 -12,540 -13,167 -13,825Gross Profit 18,451 20,570 21,598 22,678 23,812 24,457Administrative and Selling Expenses -10,002 -11,651 -11,248 -11,737 12,250 12,788Depreciation -943 -123 -1,115 -1,244 -1,380 -1,523Other Operating Expenses -254 -350 -368 -386 -405 -425Operating Profit 7,252 8,446 8,867 9,311 34,277 35,297Interest Income 236 333 263 264 264 264Interest Expense -456 -483 -425 -442 -462 -482Other Income (Loss) 668 -874 469 497 527 559Profit Before Taxation 7,700 7,422 9,174 9,630 34,606 35,638Taxes on Income -1,892 -1,632 -2,124 -2,230 -2,340 -2,456Profit for the Year 5,808 5,790 7,050 7,400 32,266 33,182
Statement of Financial Position of Revell Inc. Actual ForecastsItem 2017 2018 2019 2020 2021 2022Assets Current Assets Cash and Cash Equivalents 4,308 4,979 4,987 4,996 5,005 5,014Accounts Receivable 3,317 3,090 3,701 3,430 4,067 3,805Inventory 2,220 2,187 2,320 2,412 2,556 2,661Prepaid Expenses 2,260 1,920 2,016 2,117 2,223 2,334Total Current Assets 12,105 12,176 13,024 12,955 13,851 13,814Non-Current Assets Property, Plant and Equipment, net 8,493 8,326 9,002 9,638 10,232 10,782Long-term Investments 7,777 5,779 6,126 6,493 6,883 7,296Other Non-Current Assets 14,894 14,238 14,794 15,378 15,989 16,630Total Assets 43,269 40,519 42,946 44,464 46,955 48,522Liabilitites Current Liabilities Trades Payable 1,380 1,370 1,277 1,492 1,425 1,628Accrued Liabilities 5,535 4,835 5,077 5,331 5,597 5,877Notes Payable 5,919 6,066 6,443 6,670 7,043 7,278Income Tax Payable 258 252 172 178 188 194Other Current Liabilities 133 465 305 322 333 351Total Current Liabilities 13,225 12,988 13,274 13,993 14,586 15,328Long-term Debt 3,277 2,781 2,948 3,052 3,223 3,330Other non-current liabilities 5,023 4,278 4,501 4,712 4,953 5,184Total Liabilities 21,525 20,047 20,723 21,757 22,762 23,842Shareholder’s Equity Share Capital and common stock 8,258 8,846 9,378 9,707 10,251 10,593Profit 13,486 11,626 12,855 13,000 13,941 14,086Total Liabilities and Owner’s Equity 43,269 40,519 42,956 44,464 46,954 48,521

Statement of Cash flow for Tamiyah Inc.Item 2018 2019 2020 2021 2022Projected Cash Flow from operating Activities 18,560 21,260 26,850 21,450 17,430