ABMF 3174 FINANCIAL MANAGEMENT
Course/Group: DAC4
No. Student Name Student ID Number
1. YEOH JUEN LIN 11ABD00859
2. WONG ZHI XIN  11ABD05414
3. GARY TAN YOU HAO  11ABD04240
4. CHIN GAI CHUN 11ABD01649

Lecturer: Ms LEE YEAN LEONG 
Date of Submission: 2012 
1(a) Ways to improve on deficit cash flow:
i. Negotiate with the supplier for larger credit terms
ii. Offer cash discount to customers for early payments
iii. Firm can carry out cost cutting exercise to reduce overhead expenses
Question 2 b)
* internal rate of return (IRR) =A + [a/(ab) x (BA)] where * A = is the discount rate which provides the positive NPV * A =is the amount of the positive NPV
* B =is the discount rate which provides the negative NPV * b =is the amount of the negative NPV
internal rate of return (IRR) (machine 1) = 12% + 66934 /(66934 + 7716) x (20 12) =19.173% internal rate of return (IRR) (machine 2) = 12% + 43400 / (43400+ 38517) x (2012) =16.238% Machine M1 should be invested because it has higher NPV than machine M2
2(c) Difference between IRR and NPV
* While NPV is expressed in terms of a value in units of a currency, IRR is a rate that is expressed in percentage which tells how much a company can expect to get in percentage terms from a project down the years. * NPV takes into account additional wealth while IRR does not calculate additional wealth * If cash flows are changing, IRR method cannot be used while NPV can be used and hence it is preferred in such cases * While IRR gives same predictions, NPV method generates different results in cases where different discount rates are applicable. * NPV is calculated in terms of currency while IRR is expressed in terms of the percentage return a firm expects the capital project to return;
http://www.wikicfo.com/Wiki/Default.aspx?Page=NPV%20vs%20IRR&NS=&AspxAutoDetectCookieSupport=1 viewed on 6th November 2012 http://www.differencebetween.com/differencebetweenirrandnpv/ viewed on 6th November 2012
(d) Based on our answers calculated in part (a), Machine 1 should be invested as it gives a larger profit than Machine 2 which is RM 66934.
3a) i) At reorder quality= 3000 units
Total annual holding costs:
Q/2 x Ch
3000/2 x 0.2x30= 9000
Total annual ordering costs
D/Q x Co
(500x12)/3000xRM200=400
Purchase cost
pxD
Rm30x(500x12) =180000
Total annual inventory cost : RM189400
ii) EOQ =(2xCoxD)Ch
=2x200x(500x12)(0.2x30)
= 24000009000
=266.67 units
=267 units(rounded off)
The EOQ of 267 units means that this is the economical quantity purchase since it minimizes the cost of ordering and holding inventory. iii) At EOQ : 266.67 units
Annual holding cost 266.67units/2 x 0.2 x 30 = RM800.01
Ordering cost 6000/267.66 x 200 = RM4483.30
Purchase cost RM30 x (500x12) = RM 180000
Total annual inventory cost RM 185283.31
iv) At reorder quantity of 3000 packets, the total annual inventory cost = RM 189400. At EOQ, total annual inventory cost = RM 185284.14. If Wita Sdn.Bhd orders at economic order quantity, the cost savings= RM 4104.60
b) With a discount of 5% and an order quantity of 3000 units costs are as follows: Purchases (180000x95%) 171000 Holding costs (3000/2x0.2x30x95%) 8550 Ordering costs (6000/3000)x RM200 400 Total annual cost 179950 It is advised that Wita Sdn.Bhd should accept the discount given as it is cheaper.
3 (c) The 3 main...