Financial evaluation report
Financial management has many dimensions and activities associated with it – as argued throughout the subject, the core ones are working capital management, capital budgeting and capital structure. Each of these is part of the responsibilities that fall within the realms of the finance component of any organisation, regardless of its size (small or large) or purpose (for-profit or not-for-profit). It is crucial for us, therefore, to understand these three areas and demonstrate knowledge of how to apply the associated concepts and theories in practice – which is what this case study assesses.
Please read the case study carefully. You have five (5) questions listed below to answer in the report, all of which relate to the following Case Study.
Case Study – United Automation
United Automation (UA) is an engineering company manufacturing milling machines. The company has been greatly affected by the COVID-19 pandemic because of the unfavourable impact on the market as the machine tools orders have decreased rapidly. Most prominently, its revenues have substantially decreased, with the demand for its products at historically low levels.
Although the immediate impacts of the coronavirus pandemic are beginning to pass and businesses have begun to reopen, the upheaval is not over. Uncertainty is now a constant in the global business environment. UA is currently developing strategies and comparing different options to cope with the change and preparing for the future.
To overcome the obstacles stemming from the COVID-19 situation, the marketing department has done intensive research and suggested an aggressive 5-year marketing campaign whereby the credit terms to customers will be relaxed from 30 days to 60 days, in conjunction with other marketing strategies. This campaign would result in a (forecasted) increase in sales of 2,000 units per year and involve an additional marketing fixed cash expense of $100,000 per year.
To accommodate the extra demand created by the marketing campaign, UA is comparing two mutually exclusive investment projects. The first project is less risky as it would involve the expansion of existing facilities and requires a smaller initial investment. The second project involves higher investment but reduces the current total variable cost of the product. Both investment projects would have a five-year usable life and would be depreciated over their life using the straight-line depreciation method (assuming no salvage value).
The production manager has produced estimates for the costs associated with the manufacturing of the product. The current total variable cost of processing the product is $300 per unit, which would remain the same under Project A but is estimated to fall to $250 per unit in the case of Project B. The total variable cost includes raw material, labour and other production costs. The per-unit selling price of the product is $500.
Type of services: Academic paper writing
Type of assignment: Essay
Pages / words: 10/2500
Number of sources: 5
Academic level: Master’s
Paper format: MLA
Line Spacing: Double
Language style: AU English