Bsim Individual Assignment

BSIM - Assignment

  Based on the analysis of period 0 at the end of year 5 it is noticeable that increasing in new investment through buying new tools help to increase taxation allowance that lead to decrease taxes and increase profit, in addition to ,  decrease production cost of units as per direct production cost schedule. It is observed that units price is less than average market price, thus it is recommended to increase product price by 2 EUR to be € 80 that will enhance to increase profit, beside to, spend more in marketing to align with increase product price and as there are many stock from period 0 that mean that marketing spend was not enough with number of production to attract customer, thus It is recommended to increase market expenditures. Other strategy can be implemented is to close up shop in area 1 or area 2 with reducing our dealer and focus in our Area, as there are shipment cost € 8 / per unit for goods are moved into other areas that increase our production cost, therefore, in case of produce in our area only we will have the opportunity to save the expenditure of shipment cost that will affect our profit as well.

  It is important to have capital enough to cover several production costs such as marketing costs, shipment, Buy new tools and any other financial and operation expenses that occur within the daily operations activities of business .And there are many types to increase capital to raise fund through bonds , issue new share ,loan and overdraft. There are advantage and disadvantages to the different types of debt The advantage of bonds are that more secure to provide long-term working capital and stabilizing company to finance on a fixed interest rate by having substantial debts, in addition to, offer protection against economic changes or variable interest rate and the major benefit are not diluting the existing share price value, unlike issue new share price that tend to reduce share price. Further bonds enable more cash to operate in business, as the redemption date can be many years after issue dates .It is observed that the rate interest for bonds as well is better than overdraft facility as it is represent 2% of nominal value per quarter compared to overdraft facilities that equal 4 % per quarter, in addition to charge of 0.25 % per quarter for amount less than 6 Million and 6% for more than 6 Million. The advantage of overdraft is flexible as it is there when required for short term debt, beside to, it is easy and quick to arrange. The disadvantage of overdraft that it is costly to carry interest and fees higher than loans that make it expensive for long-term working capital, in addition to, it is need to be more secured in case of losses or inability to meet repayment as it will effect business assets. The disadvantage of bonds as the interest maybe fixed that you have to be paid even if business get losses by paying 2 % per quarter at the end of operation year. Also, bonds have limitation as controllers would not approve issue new bonds in case of increase market gearing ratio. Regarding to hiring machine tools it is effective for short term strategy that foster to decrease production unit cost, however it is effect on income statement by reducing the net profit for the present quarter that consequently affect share price value, on the contrary, The investments through order new tools have only effect on balance sheet and help to reduce taxation value that accordingly healthy for increase net profit and share price

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