Assignment#2 Step1 The discussion of the free cash flow and the economic value added have been

very useful and provide in a great deal the basis for the evaluating the investment and growth opportunities. However it can be argued how well the economic value added methodology may be relied upon. This is to say that is it necessary that a project that generate economic value or which has higher economic valued added can be invested into. This might not be the case and there might be other factors that affect the investments. This might be the debt on the company, dividend being paid and the growth levels. Thus such analysis has to be made. Second thing is that the cash flow statement has three sections, namely, cash flow from investing, operating and financing activities however in this case only operating and investing activities have been considered. Thus it has raised the doubt that how financing activities are included in the statements which is an important part of the annual reports that have been prepared. Another important point that requires consideration is how to classify different heads under operating and investing heads. This is clearly shown in the article but at the same time it has been stated that these are interrelated but it has to be clearly identified which at times might be difficult. Step 2 Step 3 The contribution margin has been calculated for each product as the difference between the selling price and the variable cost. In order to maximize the profit from the sales of these products contribution margin per unit of material required will be considered. This is to say that the product that produces maximum profit for per unit consumption of raw material will have to be produced. Thus profit per unit consumption is calculated. This has been shown below. (a) Particulars Kayak All Day Contribution per unit of fibre glass $(-12.5) (b) Kayak With Style $200 ( c) Budget kayak $25 (d) Kayak Cruiser $150 (e) Great Gold Kayak $100

Thus from the above table it can be said that the product Kayak With Style should be produced to meet the complete demand, followed by Kayak Cruiser and then Great Gold Kayak. The below table shows that how much of each can be produced to attain maximum profit. Balance Glass 50,000 10,000 0 Fibre

Product Kayak With Style Kayak Cruiser Great Gold Kayak

Units Produced Fibre Glass Used 50,000 40,000 5,000 25,000 40,000 10,000

Profit $5,000,000 $6,000,000 $1,000,000

The methodology that has been discussed is complete scientific approach and thus will provide results that are very quite useful in maximizing the profit. There are a few

considerations that need to be considered while performing the analysis. Firstly there might be deviation in the demand of the product that has been provided and thus if the demand of the products that have been considered above fall, the complete profitability will be changed. Secondly the product may be included, like Kayak All Day in order to gain market share. Thus the strategy of the management is not considered and the approach to identify the production of each product is based on the rational approach. The decision should be supported by the management and thus a few changes might be there which will be based on the strategy of the management and changes related to costing of different products might not be there.
Assignment#3

Step 1 Step 2 The NPV, IRR and Payback Period for each machine have been calculated. These have been shown below. Machine A B NPV $13381.37 $12301.95 IRR 18% 19% Payback Period 3 years 4 years

As shown in the above table the NPV of Machine A is higher than Machine B but the IRR for B is better than A. Also as per the payback period analysis both machines can be considered for the investment as the payback period for Machine A is three years and that of Machine B is 4 years. However Machine A can be considered over machine B as the net present value of machine A is greater than machine B at the given cost of capital. At the given cost of capital of 10% since the NPV of machine A is better it can be considered for the investment.