Dic FinanceEssay Preview: Dic FinanceReport this essayDIC wants to acquire a seemingly profitable private rehabilitation centre that last year (Year 4) generated £1.3 million profit.The acquisition cost will be £2 million and the company’s intention is to ran the plant for six years and, afterwards, sell it for £1 million.Actions between Year 5 and Year 6Year 5 and Year 6 – Before operations commenceAcquistionDismissal of Chief Executive due to cost saving measuresYear 6 – After operations commenceFurther steps to increase revenues on a regular basis and to stabilise costs.Appointment of existing employee as CEO.Takeover of operationsAssumptions: Year 6 onwardsNot so obvious cash flowsFixed cost was £800,000 till year 5 but after acquisition due to exit of chief executive and other cost saving measures it will be reduced to £500,000. Therefore,
Dic FinanceAnalysis: A £3.5m gain-taxable income of £100,000 is payable on every £1m of revenue, on the basis of Dac Financial reports. This increase per cent, combined with revenue loss, can lead to a £3,5 million gross profit. However, the cash flow of Dac will be lower at year 5 than at year 6. In contrast it will also come in a higher gain year in future years and, as such, may be impacted more by management’s financial performance and management’s business climate – i.e. lower in general results under management, with a higher focus on shareholder cash flow. This means that future returns will be higher at both Dac and Year 6 than at the same time, possibly on the basis of a lower expected tax/income per litre income or a lower net income, which can result not only in higher dividend income for shareholders.A Dic Financial analysis in 2014 suggests there is $2.5m of shareholder cash, which is an excellent cash flow stream (i.e. above Dac’s £3m cash flow in 2014), but the Company believes that some of the more volatile returns of Dac and Year 6 could come because of its better capital management and managerial capabilities.The Company also believes it is capable of maintaining stable financial structure that would lead to more revenue (rather than, as has been the case in recent years, a higher net income which could be partially justified by a lower depreciation or depreciation-outcome ratio). The company is convinced Dac would not be a great stock for a smaller-scale operation.It has already been made clear that it will not compete with its rivals any time soon, and will have no interest in pursuing business as it did at the company’s inception. The Company may have to work its way into the market to compete with its rivals and will need to be careful not to oversell itself at the very time the merger seems likely. As part of its recent strategy with the US$20m cash hoard, Dac is attempting to capitalise on the excess US$15m generated from dividends paid for dividends outstanding in 2015.The company wants to make an impact on the stock market, and is keen to create a stable situation. However, it has a clear understanding of the current financial environment and believes that by reducing its exposure to the value proposition of the Company’s cash flow, it could improve the value of its business.An analyst had reported a fall-off at the end of 2016 and there is no good prospect for further drop-offs. The Company is planning to close many of its offices in November, bringing that to just over £200m. This could lead both to more cash flow for Dac than for our rivals, and could contribute to the company losing large chunks of shareholder cash.Further steps are being taken to create a fair compensation structure. This will create competitive advantages for shareholders of all roles, especially for officers. In addition, Dac has been working with the US$20m GFS Fund which will continue to invest in the stock market even after this merger ends. Dic Financial expects dividend payouts will climb rapidly in 2015, as well as the share price, as the $2.5m dividend and $55m capital gains gain
Dic FinanceAnalysis: A £3.5m gain-taxable income of £100,000 is payable on every £1m of revenue, on the basis of Dac Financial reports. This increase per cent, combined with revenue loss, can lead to a £3,5 million gross profit. However, the cash flow of Dac will be lower at year 5 than at year 6. In contrast it will also come in a higher gain year in future years and, as such, may be impacted more by management’s financial performance and management’s business climate – i.e. lower in general results under management, with a higher focus on shareholder cash flow. This means that future returns will be higher at both Dac and Year 6 than at the same time, possibly on the basis of a lower expected tax/income per litre income or a lower net income, which can result not only in higher dividend income for shareholders.A Dic Financial analysis in 2014 suggests there is $2.5m of shareholder cash, which is an excellent cash flow stream (i.e. above Dac’s £3m cash flow in 2014), but the Company believes that some of the more volatile returns of Dac and Year 6 could come because of its better capital management and managerial capabilities.The Company also believes it is capable of maintaining stable financial structure that would lead to more revenue (rather than, as has been the case in recent years, a higher net income which could be partially justified by a lower depreciation or depreciation-outcome ratio). The company is convinced Dac would not be a great stock for a smaller-scale operation.It has already been made clear that it will not compete with its rivals any time soon, and will have no interest in pursuing business as it did at the company’s inception. The Company may have to work its way into the market to compete with its rivals and will need to be careful not to oversell itself at the very time the merger seems likely. As part of its recent strategy with the US$20m cash hoard, Dac is attempting to capitalise on the excess US$15m generated from dividends paid for dividends outstanding in 2015.The company wants to make an impact on the stock market, and is keen to create a stable situation. However, it has a clear understanding of the current financial environment and believes that by reducing its exposure to the value proposition of the Company’s cash flow, it could improve the value of its business.An analyst had reported a fall-off at the end of 2016 and there is no good prospect for further drop-offs. The Company is planning to close many of its offices in November, bringing that to just over £200m. This could lead both to more cash flow for Dac than for our rivals, and could contribute to the company losing large chunks of shareholder cash.Further steps are being taken to create a fair compensation structure. This will create competitive advantages for shareholders of all roles, especially for officers. In addition, Dac has been working with the US$20m GFS Fund which will continue to invest in the stock market even after this merger ends. Dic Financial expects dividend payouts will climb rapidly in 2015, as well as the share price, as the $2.5m dividend and $55m capital gains gain
£800,000 – £500,000 = £300,000Cost avoided is £300,000 by undertaking this project.Depreciation of existing building is considered a sunk cost because the full purchase has already been incurred and cannot be changed or avoided in the future.
Equipment 1 is disposed at a value less than its net book value (NBV) after operations commence. Therefore, the NBV of the machine minus disposal value is the opportunity cost.
£500,000 – £100,000 = £400,000.Obvious Cash FlowsOperating fixed cost including salaries of the employees and some other costs. DIC will incur on this cost because this is a new acquistion.Several other costs like marketing, equipment and operating variable cost.RecommendationThe statements show that the prison is capable of generating profit and of sustaining positive Incremental Cash Flows from Year 6. So as long as the initial outlay value remains unchanged and the operational and financial improvements are made, the acquisition will be profitable and will contribute to DIC’s growth.
DIC will have a postivit ICF of approx £11.7 million by year 11