QUESTION 3 FINANCE a) The IT Manager of Moriarty Marketing company is considering purchasing some new audio visual equipment. Initial research has identified two possible suppliers that can provide different equipment that will satisfy the requirements and has given the following budget outlines on a cash basis: The equipment will cost 50,000 to purchase and at the end of the period will have zero residual value. If the project geos ahead, it is predicted that the company will gain increased revenue that has been projected as that shown in Table Q3a. Year Revenue generated- Revenue generated Supplier A () Supplier B () 1 5,000 20,000 2 17,000 30,000 3 42,000 20,000 4 30,000 20.000 5 10,000 20,000 Table Q3a You are required to determine for each supplier option: The Payback Period The ARR (Average rate of Return) Produce tables showing the relative cash flows that are relevant to each year that can be used to determine these answers. It is assumed that the annual cash flows shown in the table arise evenly throughout the year and that there are no tax, depreciation or interest aspects to be considered. Analyse your findings and make recommendations as to which supplier Moriarty Marketing should choose from a financial perspective, using the answers from above to support your argument (Maximum 150 words). (6 marks) b) Discuss the various limitations of the simple payback period method and the ARR in the context of overall capital investment appraisal. Explain what you believe the advantages and disadvantages may be of using discounted cash flow methods for capital investment appraisal. (Maximum 600 words). (14 marks) c) The Lestrade & Metropolitan Manufacturing company produce aluminium die cast models of famous fictional characters. On the 1st of September they carried out a stock check and found that they held in their company stores a quantity of 1.100 tonnes of aluminium alloy, which is valued at 5.10 per tonne (as shown in Table Q3c). The goods received notes and materials requisitions (from production QUESTION 3 FINANCE a) The IT Manager of Moriarty Marketing company is considering purchasing some new audio visual equipment. Initial research has identified two possible suppliers that can provide different equipment that will satisfy the requirements and has given the following budget outlines on a cash basis: The equipment will cost 50,000 to purchase and at the end of the period will have zero residual value. If the project geos ahead, it is predicted that the company will gain increased revenue that has been projected as that shown in Table Q3a. Year Revenue generated- Revenue generated Supplier A () Supplier B () 1 5,000 20,000 2 17,000 30,000 3 42,000 20,000 4 30,000 20.000 5 10,000 20,000 Table Q3a You are required to determine for each supplier option: The Payback Period The ARR (Average rate of Return) Produce tables showing the relative cash flows that are relevant to each year that can be used to determine these answers. It is assumed that the annual cash flows shown in the table arise evenly throughout the year and that there are no tax, depreciation or interest aspects to be considered. Analyse your findings and make recommendations as to which supplier Moriarty Marketing should choose from a financial perspective, using the answers from above to support your argument (Maximum 150 words). (6 marks) b) Discuss the various limitations of the simple payback period method and the ARR in the context of overall capital investment appraisal. Explain what you believe the advantages and disadvantages may be of using discounted cash flow methods for capital investment appraisal. (Maximum 600 words). (14 marks) c) The Lestrade & Metropolitan Manufacturing company produce aluminium die cast models of famous fictional characters. On the 1st of September they carried out a stock check and found that they held in their company stores a quantity of 1.100 tonnes of aluminium alloy, which is valued at 5.10 per tonne (as shown in Table Q3c). The goods received notes and materials requisitions (from production
