Value in two years time - $200,000
Value in the first year $200,000-($200,000*0.045) = 191000
The current value of the technology -191000-(191000*0.045) = 182405
Present value of the green technology:-
| Period | Initial cost | discounting factor | present value |
| 0 | 182405 |
182405 (1+0.12) 1 |
$162861.6 |
The present values for each period
| Period | Initial cost | discounting factor | present value |
| 1 | 1800 |
1800 (1+0.1) 1 |
1621.60 |
| 2 | 4090.526 | 3380.6(1+01)2 | 3380.6 |
| 3 | 2900 |
2900 (1+0.10) 3 |
2180.50 |
| 4 | 3100 |
3100 (1+0.10) 4 |
2117.30 |
| Total | 9300.00 |
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| a. | 30 | -day collection period | ||||
|
Q1 |
Q2 |
Q3 |
Q4 |
|||
| Beginning receivables |
$350 |
$ 450.00 |
370.00 |
$ 420.00 | ||
| Sales |
$750 |
$820 |
$790 |
$950 |
||
| Cash collections |
450.00 |
370.00 |
420.00 | 530.00 | ||
| Ending receivables |
450.00 |
370.00 |
$ 420.00 | $ 530.00 | ||
| b. | 45 | |||||
| Beginning receivables |
$ 530.00 |
$ 220.00 |
$ 600.00 |
190.00 |
||
| Sales |
$750 |
$820 |
$790 |
$950 |
||
| Cash collections |
220.00 |
600.00 |
190.00 |
760.00 |
||
| Ending receivables |
$ 220.00 |
$ 600.00 |
190.00 |
$ 760.00 |
||
| c. | 60 | |||||
| Beginning receivables |
$ 760.00 |
$ (10.00) |
810.00 |
$ (20.00) |
||
| Sales |
$750 |
$820 |
$790 |
$950 |
||
| Cash collections |
(10.00) |
810.00 |
(20.00) |
930.00 |
||
| Ending receivables |
(10.00) |
810.00 |
(20.00) |
930.00 |
||
Input area
Payment accounts
1500 (0.65)= 975
1300(0.65)= 845
$1,400(0.65)= 910
$1,400(0.65)= 910
Sales
1300(0.25)= 325
1400(0.25)=350
1400(0.25)=350
$1,200(0.25)= 300
Discussion of the workings
It is recommended that the technology proposed by Shawn Paschal is adopted. The present value of the projected sales of the firm is higher than the present value of the initial cost of investment. An investment is deemed viable for adoption if the present value of the projected cash inflows is higher than the initial cost of the investment, indicating a potential for profitability in the future (Paseda, 2016) .
I would recommend against the 30 day collection period and carry out the collection at the end of the financial period. The reasoning for this is that the longer collection period will give the firm an opportunity to collect enough financial resources to finance its financial obligations; the obligations include servicing of debts as well as other expenses such as payment of salaries and wages (Harish, 2018) .
Synopsis
King fisher Aviation Company is a public; limited company that finances its capital using equity and debt. Equity is obtained by selling off part of the company to shareholders while debt is obtained through sourcing financial resources from credit facilities such as commercial banks as well as selling of bonds and debentures which are offered at an agreed upon interest rates (Harish, 2018) .
A look at the firm’s financial information indicates that the firm has recorded an increase in the volume of sales but is struggling to keep down the cost of operation which will eventually have a negative impact on the profit margin of the firm. It is recommended that the firm cuts down the cost of doing business to enable it increase it profitability at the end of the financial period. The firm’s management will also need to consider altering its capital structure and use more of equity capital and less of dent capital so as to improve the creditworthiness of the firm. This is because firms that use huge amounts of debt to finance its capital risk the inability of the firm to finance its debts which could end up in bankruptcy (Chaplin, 2016) .
References
Chaplin, S. (2016). Accounting Education and the Prerequisite Skills of Accounting Graduates: Are Accounting Firms’ Moving the Boundaries?. Australian Accounting Review , 27 (1), 61-70. doi: 10.1111/auar.12146
Harish, K. (2018). Determinations of Capital Structure. International Academic Journal Of Economics , 05 (02), 26-54. doi: 10.9756/iaje/v5i2/1810014
Paseda, O. (2016). Advanced Capital Budgeting Techniques: A Review Article. SSRN Electronic Journal . doi: 10.2139/ssrn.2901530
