Financial Report Assignment

Finance assignment #2 – Capital Budgeting Example

Team Information
Alias
Name
Student Number
*Tiffany
HUANG Wan Hong
14430819
Kelly
ZHAO Yun
14430835
Cara
ZHU Zhen Yi
14410273
Sherry
TAN Xin Yi
14431092
Priscilla
HU Xiao Ling
14431130
L.X
LIU Xun
14433176
Tiffany
CHO Tiffany
14444984

Introduction
XYZ Bicycle Co.Ltd. is a bicycle production company, it is considering a new plan that whether to introduce a new mountain bike product line, for the reason that the company holds the view that this plan will increase its profits. However, this company is very cautious and it wants to ensure if this plan is perfect. This report will analyze this project by using relevant knowledge to decide if the company should introduce the new mountain bike product line.

The relevant financial data has already been shown in the case, moreover, there have two opinions if the company adopts the new plan. The first one is that the company purchases new equipment at the first time; another one is that the company uses the current excess capacity to produce the maintain bike for two years, and it will buy the new equipment in the year two. This report will analyze these two kinds of opinions and make a conclusion to choose the best one.
Based the data included in the case, firstly we have recorded the necessary data in a chart, and this chart is shown as below:

Reference Chart
Year
1
2
3
4
5
Sales Volume
1400
1525
1730
1650
1420
Sales Revenue
8.680
9.455
10.726
10.230
8.804
Variable Costs
3.906
4.255
4.827
4.604
3.962
Fixed Costs
2.1
2.1
2.1
2.1
2.1
Total Costs
6.006
6.355
6.927
6.704
6.062
Depreciation
Case 1

1.343
2.302
1.644
Depreciation
Case 2
1.343
2.302
1.644
1.174
0.839
(The unit of the price is million)

Step 1
In this case, it seems to be an important decision for XYZ Bicycle Co. Ltd to determine whether to introduce the new mountain bike. As a commercial business entity, XYZ Bicycle Co. Ltd tends to maximum its overall profits which must be one