2,Define two alternative methods of funding a capital purchase, eg a forklift truck. Consider the financial benefits or disadvantages of each method.●Credit from SuppliersA supplier provide goods or services to a purchaser with an arrangement for payment at a later date.Financial benefits-the can be cheapest form of financeDisadvantage-price may be adjusted to follow for credit-delayed payment can lead to poor relations with suppliers●Leasing and Hire PurchaseLeasing:A lease is an agreement conveying the right to use property, plan or equipment usually for a stand period of time, in return for payment for rentThe user does not own the assets, however, an option to buy the assets outright once the leasing term is completed.Hire Purchase:A company makes on initial down payment followed by regular fixed installments with the additional payment of HP interestThis source of finance would nor-malty be for a specific asset that would remain the properly of the leader until the last payment has been made3,Describe the differences between revenue and capital purchasing and why they are accoun ted for in separate ways.The distinction between capital expenditure and revenue expenditure derives from the fact that, by convention, financial statement are produced on an annual basis.Revenue expenditure refers to expenditure on the day-to-day running of the business.on the other hand,capital expenditure refers to the value of the businessRevenue expenditure appears in the trading, profit and loss account as an item of expense whereas capital expenditure appears in the balance sheet as fixed asset.Items of capital expenditure include property,machinery and motor vehicles.To write off the entire cost of these items in one accounting period the cost of these items in one accounting period the cost life span.This concept is known as depreciationThe process of spreading the cost of revenue expenditure is an accounting concept known as matching. It refers to fact that we are matching an item of expenditure with the revenue it help to generate.In other words, if a piece of machinery will help to generate sales over 5 years then its cost should be spread over the same period.A clear distinction shall be drawn between revenue expenditures and capital expenditures.Expenditure shall be regarded as revenue expenditure where the benefit to the enterprise is only related to the current fiscal year and as capital expenditure where the benefits to the enterprise last for several fiscal years4,Explain a decision making process that is relevant to the purchase of a capital item. Detail the steps taken and what the considerations are for managers.Step Detailed description ConsiderationsInitial request for capitalitem Identifying the need for thepurchase,and then formalizethe needMost firms of reasonable sizewill have a capital expenditureBudget within which majorprojects will be consideredSourcing Investigate the circumstance ofthe market The use of a standard requisition form showing the nature and amount of the expenditure and rationale for itAuthorisation Build a business budget,seek aauthorization from financefunctionThe market demand, productprices, and corporate financeInvestigation A survey with purchasingdepartment, it is concludedthat points reportThe quality of theproduct,After-sales serviceAppraisal and evaluation Evaluation and comparison ofthe survey's statementsThe product can bring benefitsBuying decision Having the Purchasingfunction(buying team)Financial budgetPurchase and acquire Sign the purchase contract The duration of the contractand legal benefits5,Calculate the life cycle cost for a specific capital purchase using tow alternative sources of s upply. You may use the purchase identified in question 2. Contrast the final costings of each example, show the benefits/savings accrued and comment on your results.Forklift Tuck PurchasingProjected useful life = 3 yearsCompany A (£）Company B（£）Purchasing price 8000 9000Estimated Fuel Cost (3 years) 16000 15000Estimated7000 5000Maintenance&Repairs(3years)Estimated Overhand (3 years) 4000 3000Net Present value 973.21 785.69Total outlay 4973.21 3785.69Disposal value 2400 1000Net cost 2573.21 2785.69According to the form suggest, company A purchasing price is less than company B, and the disposal value is more than company B, but due to the company A estimated fuel cost, estimated maintenance&repairs and estimated overhand is more than company B.And the net present value as well as total outlay through calculated value is more than company B. That resulting is the company A net cost is more than company B, therefore we will select the company B.6,Explain two methods of investment appraisal from:PaybackDiscounted cash flowAccounting rate of returnProduce a short report evaluating the results gained.The Payback MethodThe pattern here is clear, In year 1, the initial negative cash flow of £200000 is only partly compensated by financial benefits in later years.By the end of year 4 the net cumulative cash flow is zero.We say that the project has paid back by the end of year 4. By the time the machine’s useful life is finished the cumulative net cash flow has reached positive figure of £50000.-Easy to understand-More objectively uses cash flows rather than profitsDisadvantage-Ignores the time value of money-Ignores the fact that benefits from different projects may accrue at an uneven rate-Ignores cash flows after the payback period-Ignores the interest on the initial investmentTable1: Year Net Cash flow each year Cumulative cash flow 0 （£200000） (£200000) 1 £50000 (£150000) 2 £50000 (£100000) 3 £50000 (£50000) 4 £50000 £0 5 £50000£50000computational formula:investmentintial Estimated prof itaverage EstimatedThe Accounting Rate of Return MethodFor the first project, the overall return over five years is £50000, which is represented by savings of £250000 compared with expenditure of £200000. This means that average annual return of £10000 are expected on an investment of £200000, a 5 per cent rate of return.For the second project, the overall return over six years is £100000. This means that average annual returns of £16667 are expected on an investment of £200000, a rate of return of 9.3 per cent per annul. On this criterion, the second project is preferable.Advantage-Easy to calculate-Takes into account the profits-Ignores the time value of money-Uses accounting measures of profit rather than cash flows-Two methods mar lead to different decision-Ignores the project life and size of projectTable2; Year Net Cash flow each year Cumulative Cash flow 0 (£200000) (£200000) 1 £20000 (£180000) 2 £20000 (£160000) 3 £20000 (£140000) 4 £80000 (£60000) 5 £80000 £20000 6 £80000£100000Accounting Rate of Return Method: tinvestnven initial Estimated prof itaverage EstimatedAverage Profit:PeriodInvestment Projectthe of Prof it Cumulative。