International Financial Management of Microsoft Dynamics

Question: Describe about the International Financial Management of Microsoft Dynamics? Answer: Investment Appraisal The report on investment appraisal for Cagoo Clothing PLC is prepared. The company is thinking of purchasing a new shop in London, which costs for 7 million. The investment appraisal method consists of two features, which are- To assess the expected returns level earned from the expenditure level. To estimate the future benefits and future costs from the purchase of the shop. From the new shop, Cagoo Clothing PLC is likely to earn cash flows for the next 10 years which are- Year Cash Inflow Cash Outflow Cumulative Cash Flow PVF PV 0 7,000,000.00 - 7,000,000.00 1.0000 1 1,000,000.00 - 6,000,000.00 0.9091 909,090.91 2 1,000,000.00 - 5,000,000.00 0.8264 826,446.28 3 1,500,000.00 - 3,500,000.00 0.7513 1,126,972.20 4 1,000,000.00 - 2,500,000.00 0.6830 683,013.46 5 1,000,000.00 - 1,500,000.00 0.6209 620,921.32 6 1,500,000.00 - 0.5645 846,710.90 7 2,000,000.00 2,000,000.00 0.5132 1,026,316.24 8 2,000,000.00 4,000,000.00 0.4665 933,014.76 9 2,000,000.00 6,000,000.00 0.4241 848,195.24 10 2,000,000.00 8,000,000.00 0.3855 771,086.58 15,000,000.00 7,000,000.00 NPV of inflow 8,591,767.88 NPV of outflow 7,000,000.00 NPV 1,591,767.88 Not getting what does 5 cash flows means in project management. The total outlay is 7,000,000, the total return is 15,000,000, and the net return is 8,000,000 (Arnold, 2013). Average Annual Return= Net Return/ Number of years=8,000,000/10 = 800000 NPV of the project, which is used to assess the summation of the present value of all the cash inflows and outflows, can be calculated as- NPV= Cash Flow/ (1+r)t Here r is the discounted rate and t is the time period. So, the NPV = 1,591,767.88 The discounted rate is assumed as 10%. Payback Period is the number of years during which the company is successful in obtaining the entire value of the investment from the cash flows. The payback period of Cagoo Clothing PLC from its investment in the new shop in London is 6 years (Barrow, 2011). Cost Of Capital The sources of finance of the company for its new project are both the equity and debt capital. Therefore, the equity capital used here is 4 million and the debt capital is 3 million. The cost of equity is assumed 12.5% and the debt capital is assumed 8%. Therefore the weighted average cost of capital or WACC is- WACC=Cost of equity*Weighted value of equity+ Cost of debt*Weighted value of debt = 0.125*4/7+0.08*3/7= 10.57% Sensitivity Analysis The sensitivity analysis of the investment includes the variation in the cash inflow generated from the shop. Year Cash Inflow Sensitivity 1 1,000,000.00 2 1,000,000.00 0% 3 1,500,000.00 50% 4 1,000,000.00 -33% 5 1,000,000.00 0% 6 1,500,000.00 50% 7 2,000,000.00 33% 8 2,000,000.00 0% 9 2,000,000.00 0% 10 2,000,000.00 0% (Bekaert and Hodrick, 2012) Sales Statement July August September October November December 4500 4590 4681.8 4775.436 4870.94472 4968.363614 40.00 40.00 40.00 42.00 44.10 46.31 180,000.00 183,600.00 187,272.00 200,568.31 214,808.66 230,060.08 Sales in October have been increased by 5% and the calculation is correct. The sales value is collected as per the questions. Closing Inventory Statement Particulars July August September October November December Opening Inventory 100000 30,000.00 1,400.00 - 55,872.00 - 136,440.31 - 191,248.97 Add: Purchase 110000 155000 130000 120000 160000 175000 Less: Sales 180000 183600 187272 200568.31 214808.66 230060.68 Closing Inventory 30,000.00 1,400.00 - 55,872.00 - 136,440.31 - 191,248.97 - 246,309.65 The suppler gave a month credit due to which the purchase for June is shown in July and so on. Cash Flow Budget Particulars July August September October November December Gross Profit (40% of Sales) 720,000.00 734,400.00 749,088.00 802,273.00 859,235.00 92,040.00 Interest 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 Net Profit 719,000.00 733,400.00 748,088.00 801,273.00 858,235.00 91,040.00 Electricity Cost - - 4,000.00 - - 4,000.00 Insurance 750.00 750.00 750.00 750.00 750.00 750.00 Rent 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 Cash from operations 716,250.00 730,650.00 741,338.00 798,523.00 855,485.00 84,290.00 Repayment of loans 4,000 4,000 4,000 4,000 4,000 4,000 Total cash flow 715,000 729,400 740,088 797,273 854,235 911,240 (Brigham and Houston, 2012) Budgeted Income Statement Particulars Amount Sales 1,196,309.05 COGS 717,785.43 Gross Profit 478,523.62 Electricity Costs 8,000 Operating Profit 470,523.62 Interest 1,000.00 Net Profit 469,523.62 Rent is adjusted in the COGS. Not getting why a budgeted income statement would be shown for 6 months. Budgeted Balance Sheet Statement Particulars Amount Amount Assets Bank Balance 250,000.00 Inventory 246,309.65 Total Assets 496309.65 Liabilities Bank Loan 150,000.00 126,000.00 Installments 24,000.00 Total Liabilities 126,000.00 Equity Capital 90,000.00 Retained Earnings 280309.65 Total Equity 370309.65 Total Assets= Total Liabilities and Equities= 496309.65 (Brooks, 2013) Balance Sheet is for the period ending 31st December 2015. Advantages of retained earnings- While using retained earnings, the company does not have to bear acquisition cost, which makes it a cheap source of finance. It improves the financial condition of the company and thus improves financial stability. If the amount of retained earnings is high then the company is likely to have a stronger financial position. It maintains a steady dividend payment to the shareholders even if the company fails to make profit. During the poor financial performance of the company, the preference shareholders are paid dividends from the retained earnings. Retained earnings improve the financial structure of the company, which in turn increases its market value of the companys shares (Eun and Resnick, 2012). Disadvantages of retained earnings- The retained earnings may not be utilized correctly all the time, which may result in future financial stagnancy. If the dividend policy of the company is conservative then the company may accumulate more retained earnings, which may result to over-capitalization. Retained earnings sometimes lower the market value of the companys shares due to fall in dividend rates (Grieve, 2013). Other sources of Finance- Internal Sources- Sales of the assets of the company, which helps in generating, fund for the company. Cutting down the total level of the inventory of the company helps in improving the financial position. External Sources- Long-term external sources include the equity and preference shares, debentures, borrowings and long-term loans. Medium term external sources include the leasing of properties, hire purchase and medium term loans. Short-term external sources include the bank overdraft in the balance sheet, short-term loans, creditors and debt factoring funds. Growright can think of using a combination of external and internal sources of finance for its business (Nicolas, 2013). References Arnold, G. (2013). Corporate financial management. Harlow, England: Pearson. Barrow, C. (2011). Practical financial management. London: Kogan Page. Bekaert, G. and Hodrick, R. (2012). International financial management. Boston: Pearson. Brigham, E. and Houston, J. (2012). Fundamentals of financial management. Mason, Ohio: South-Western Cengage Learning. Brooks, R. (2013). Financial management. Boston: Pearson. Eun, C. and Resnick, B. (2012). International financial management. New York, NY: McGraw-Hill. Grieve, I. (2013). Microsoft Dynamics GP 2013 financial management. Birmingham, UK: Packt Pub. Nicolas, C. (2013). Microsoft Dynamics NAV Financial Management. Birmingham: Packt Publishing