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Accounting for Business

Question 1

Delcom Chemicals is considering the purchase of a new industrial business for $800,000. The current owners have provided Delcom Chemicals with their financial information which has shown that they will expect a profit of $200,000 in year one, $210,000 in year two, $300,000 in year three, $320,000 in year four, and $340,000 in year five.

Using the information above, Calculate the net present value (assuming a discount rate of 13%), payback period and accounting rate of return (disregarding depreciation).

 

Question 2

In your own words using appropriate references, provide a discussion about what these ratios calculate and whether they show that this investment should go ahead or not.

 

Question 3

Delcom has also been provided with the opportunity to purchase an existing chemical plant for $800,000. Information to help them determine their future cash flow for the new business if they were to purchase it is shown below for the next 4 months starting in January. Assume that there is 4 weeks in every month.

Total monthly running costs:

·         14 staff members who will work 7.5 hours a day, 5 days a week at $26.50 per hour.

·         Raw materials $300,000

·         Electricity $100,000

·         Administration $40,000

Delcom has been told by the current owners that they sell 400 tons of chemicals per month at a cost of $1600.00 per ton.  If the business is purchased, Delcom intends to have $100,000 in the business bank account.

Using the information above, construct a sales budget and a labour budget for January, February, March and April.

 

Question 4

In your own words using appropriate references, describe what each of these budgets are and state what they tell you about this business.

 

Question 5

In your own words using appropriate references, critically analyse, describe and state which business should be purchased.