Evertone Pty Ltd.’s Financial Management

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Table of Contents

Introduction
Capital Costs
Operating Costs
Revenue
Cash Flow
Contract Price Adjustment
Foreign Exchange Exposure
Works Cited

Introduction

Our company, called Everyone Pty Ltd. is an Australian enterprise that deals in purchasing, assembling, and reselling various kinds of hearings aid. As a response to the annual call by the Australian Hearing Service (AHS), our company has prepared a tender bid based on its performance and financial records. It can be mentioned that our products at Everyone are superior to other products manufactured by our competitors. Some of the products include Behind the ear hearing aids (BTE).

In the ear, hearing aids (ITE) and Completely in the canal hearing aids (CIC). These products are unique since there are no equivalences produced by our competitors. Based on various financial factors, the cost of materials, and revenue targets of the company, we have prepared a financial bid for Evertone Pty Ltd.

The capital costs of the goods we supply are outlined below:

Capital Costs

Purchase prices of BTE aid at A$32, ITE at A$40, and CIC at A$56, while other costs include training costs to the staff of AHS estimated at A$10,000. AHS purchased a total of 8, 250 hearing aids of different kinds. These aids were bought as follows; 2,500 BTE aids (@ A$ 32), 3,000 ITE aids (@ A$ 42), and 2,750 CIC aids (@ A$56). All these items amounted to A$ 350 000 in terms of capital costs.

Operating Costs

Labour costs for the tender period could stand at A$95,000, while maintenance of equipments at A$18,000, energy costs at around A$25,000, and standard licensing fees of A$15,000.

Revenue

We expect to sell the hearing aids to AHS during the tender process and obtain net sales of around A$350,000.

Cash Flow

From the set of the tender documents availed by AHS, the tender is expected to be based on a one-off payment. Therefore, a sum of A$350,000 will be released in one trance.

Contract Price Adjustment

The adjustment of the costs and contract prices will be made by a committee, and proposals made by the Evertone Pty Ltd. company will be forwarded to AHS. Only special and considerable circumstances could lead to an adjustment of the cost of the tender or prices (Hutt and Speh 63). In this case, the cost will be adjusted to a level of 10% of the set total tender price. Based on the revenue price of A$350,000, the contract price adjustment will be around A$35,000 up to A$50,000.

Foreign Exchange Exposure

Most of the materials and products will be imported from Japan, where they are processed. As a result, there is exposure to the changes in currency swings. Therefore, we have to analyze the behavior of the Japanese Yen against the Australian Dollar. In our case, the Australian Dollar has been stronger for a period of time against the Japanese Yen, which would affect the price of items (Hutt and Speh 109). This fact could increase/decrease the company’s earnings by around 2% to 3%.

Also, we have to find out the net present value (NPV) of the tender bid based on the timing and contract cost adjustments, as shown below:

Net cost = A$350,000, Cost Adjustments = A$35,000, this amounts to 10% of the contract cost. Since the tender is an annual program, the timing will cover 1 year. Making use of the Discounted Cash Flow technique, we can now find the NPV.

The total cost of the revenue is A$350,000, while the rate is at 10%, which is the adjustment.

In this case, the NPV = 350,000 – (0.1 * 350,000) = 350,000 – 35,000

NPV = A$315,000.

Payback period = NPV/Total Operating Costs = 350,000 / (10,000 + 25,000 + 95,000 + 18,000 + 15,000), = 350,000 / 163,000 = 2.15 of a year. Or = 2.15 * 12 = 5.58 months

In this case, the Payback period is 6 months.

Works Cited

Hutt, Michael D., and T. W. Speh. Business Marketing Management: B2B, Mason, OH: South-Western Cengage Learning, 2010. Print.

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