Case study Essay Example | Topics and Well Written Essays - 2000 words - 1

Case study - Essay Example o 600,000 sterling pounds, adding this amount to the working capital of 180,000 pounds amounts to an initial cost of 780,000 pounds. The overheads have been adjusted from the previous 47,000 pounds to 30,000 pounds in a year. Question One b i) Pay back Year Cash flow ? (?000) Cum. CF ? (?000) 0 (600) (600) 1 147,000 (453) 2 157,000 (296) 3 157,000 (139) 4 187,000 48 5 187,000 23 3 years and (139/ 187) x 12 3 years and 8.9 months ii) Net Present Value Year Cash flow ? DF 12% PV ? 0 -600,000 1.000 -600,000 1 147,000 0.893 131,271 2 157,000 0.797 125,129 3 157,000 0.712 111,784 4 187,000 0.636 118,932 5 187,000 0.567 106,029 The net present value is -6,855 pounds. Question One C Using NPV to make decisions regarding the investment of a project is advantageous in that the NPV takes into consideration the time value of money and gives priority to the risks that will be involved as well as the profitability of the project. A negative NPV implies zero returns therefore I would advice the ma nagers to reject the project. Question Two Whenever a bank is granting or making a loan facility to a client, a number of factors are considered by the authorizing persons. These are the factors that do determine whether the client is eligible to receive the loan or not. Factors sometimes do vary depending on whether the client is a person or a business. The bank looks at the credit history of the borrower. The history of the client’s credit situation is based on the score or the rating that is mostly done by agencies, for instance, Transition. The credit score that a client is awarded determines the eligibility to receive the loan facility. The bank acquires the commercial credit report from an agency on the company’s credit history. The reports normally comprise of the payment history information, past credit scores and information on the public filings done (Crawford 2013). Existence or occurrence of negative information from the report for instance late payments or tax liens outstanding degrades the company credit score. The most obvious response from thee bank is seeking an explanation from the company regarding the occurrence. The advice given to the company is to review a copy of the report, after requesting it from the agency responsible. This gives the company the opportunity to correct any discrepancies that exist. The business credit reports are bases on the tax allegiance (Crawford 2013). The bank also looks at the financial position of the company. The bank normally request to be provided with the latest statements that justify the working capital. Working capital ranges from the current assets to first hand cash to the availability of finances to pay the current debts without affecting the normal running of a business. Working capital defines what is left after deducting all the current liabilities. When the working capital is inadequate, the Implication of the assumptions to be made is that the firm or business is facing the risk o f collapsing. The consequence of this is facing a rejection on the