Financial Management Assignment
Quinn Limited is a private family owned company, established in the late 1960's by Tom Quinn, who is the current managing director and 60% shareholder. Since incorporation the company has manufactured plastic trays and cups used on aeroplanes for passenger meals. Until the mid 1990's this was its only product, however since then other similar plastic products have been added to the portfolio, including clear plastic bottles for soft drinks. Until recently this was a very small part of the total operation, however, under the guidance and drive of Jonathan Quinn (the son of Tom Quinn and a 20% shareholder), the company has developed bio- degradable plastic soft drinks bottles. As a result of this significant innovation, Quinn Limited has been approached by a major world-wide soft drinks manufacturer to supply these bottles under a 15-year contract.
The contract is for 10,000 boxes of bottles for each of the first three years, 12,000 for each of the next nine years and 15,000 for each of the last three years. The contract-selling price of each box will be £550 in the first year with a 3% increase each year.
In order to meet this contract Jonathan Quinn is considering two mutually exclusive options:
To set up a new factory specifically for the production of the new bio- degradable bottles which will be sold after fifteen years.
To expand the existing factory. This will however result in a reduction in the production of existing product ranges.
Preliminary cost estimates have been drawn up concerning the building of the new factory, which will be sited in Southeast Wales. These are as follows:
£ £ £ £ £
Land 1 000 000
Factory building 8 000 000
Plant and Equipment 9 000 000
Office Fixtures and fittings 500 000
18 500 000
Note: Depreciation is only on Plant & Machinery.
Depreciation is not an actual cash flow , it is ...
The financial management recommendation formulas are found.