Strategic Corporate Finance case study 1 Essay Example | Topics and Well Written Essays - 2500 words

Strategic Corporate Finance case study 1 - Essay Example have a useful life of around 20 years and after that they are expected to be removed with a decommissioning cost of around  £2,000 and  £5,000 for onshore and offshore projects, respectively. As far as the adjustments are concerned, sales revenue has been the same for both projects and there is no change in either of profit and loss account and working of cash flows. Government grant has been adjusted such that the government grant would be received by the company in first year of the project which is  £2,000 and  £5,000 for both these projects respectively. However, in profit and loss account, government grant is spread to all 20 years in equal proportion which, however, is adjusted for the estimation of cash flows. Local taxes are included in the profit and loss statement however they have not been included in the estimation of cash flows as guided in the additional information. Being a non-cash expense, depreciation is not considered in the cash flow estimation which is however included in the profit and loss statement (Scott and  Megginson, 2008). Cash reserve is in fact working capital which is not included in the profit and loss statement. However, an outflow of cash reserve is shown before the start of first year project and has been realized in the last year of the project with the same amount. Capital budgeting process has been conducted for both these projects in order to evaluate the financial viability of these projects. The financial viability can be envisaged using four types of investment appraisal techniques such as 1) Net Present Value (NPV) 2) Internal Rate of Return (IRR) 3) Accounting Rate of Return, and 4) Payback Period (PP). The following discussion incorporates each of these four techniques with respect to both â€Å"onshore† and â€Å"offshore† projects. Net Present Value of any projects determines the present value of all the future cash flows discounted with an appropriate cost of capital of the firm after deducting the initial