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Duke Company: Calculations for the Project - Assignment Example

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Duke Company: Calculations for the Project

This means that our assets will be exposed to varied amounts of risk. Among them will be credit risk. There are assets which will not be fully paid for but will be still be under operations in the business. This means they will be exposed to credit risks. Of importance will be exposure of these assets to operational risks. The assets will still be used for operations in the business. This means there will be various operational risks to be encountered in the company. There will be market risks to be encountered. This would be reflected by the dangers of our assets being declared obsolete. The market is ever changing and the expectations of our customers are also changing (Clyde and Roman, 2007). This would be a challenge to be encountered. Depreciation will also be put into consideration as it will be a mandatory activity to counter all the above mentioned risks. Cost of assets. The cost of total current assets will be estimated at $6,289,666. This is an average for a three year period. The total fixed assets will be calculated in the same way and a figure of $59,552,000 will be the total estimates taken over a three year figures shows that this is a viable project to be undertaken. The figures do not vary much with the initial project hence a show of signs of profitability. Short term investments will be present in the third year of operation with an estimated figure of $185,000. This is an indication that things will be slowly picking up. According to our projected figures, inventory will be on the rise for the three consecutive years. This is a vivid sign that business will be on the rise. Also for the first three years we expect no accumulation on amortization. Other assets will also be on the increase hence the business will be growing. This is a clear justification that the business will be viable project to be undertaken. Accounting net income and cash flows Net income represents income less expenses incurred by a business for a given accounting period (Harris and Hazzard, 1997). Cash flow represents the circulation of money into and out of a business. All these two statements are usually prepared during a given accounting period. Cash flows are used to calculate parameters such as internal rate of return and net present value of any business (Harris and Hazzard, 1997). This means it is a statement that can be used to determine the problems affecting a company’s liquidity position. Cash flows represent a company’s concepts in accrual accounting. This will be used to determine the quality of net income generated by a business. Finally, cash flow statements generally show the risks associated with any business net income shows the profitability of a company in a given period. It can also be referred to as an increase in the stock holders’ equity. Net income is seen to be inseparable with profit and loss hence it is an important aspect in any business (Clyde and Roman, 2007). At times net income is distributed among common stock holders in the form of dividends; other ...Show more


Calculations for the Project Cash Flow Period Cash Flows NPV $35,366.48 Dec-09 556,000.00 Dec-10 128,000.00 Dec-11 440,000.00 Dec-12 550,000.00 NPV at 15% rate for a period of three years is $ 35, 366.48 Cost of Capital = Dividend per Share + Expected Future Earnings Market Price Share 313.38 + 0.16 21.56 14.72 = 15% Project Cost Flow Project cash flow PVIF@ 15% P.V Years 1 2 3 556000 128000 440000 0.8696 0.7561 0.6575 483497 96781 289300 Less initial capital 372000 +NPV 497578 IRR using 15% Years Cash flow PVIF@ 15% P.V 1 2 3 556000 128000 440000 0.8696 0.7561 0.6575 483497 96781 289300 869578 Using 10% Years Cash flow PVIF@ 15% P.V 1 2 3 556000 128000 440000 0.8696 0.7561 0.6575 505459.6 10…
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