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Analysis of the project if continued with only new product with optimistic sales figures - Essay Example
Finance & Accounting
Pages 3 (753 words)
Case Study Contents Case Study 1 Contents 2 Executive summary 3 Project acceptance or rejection 4 Analysis of the project if continued with only new product with optimistic sales figures 4 Analysis of the project if project with only new product 5 Analysis of the project if project implemented with contract manufacturing and pessimist sales of new product 6 Recommendations 6 Reference 7 Executive summary The capital budgeting decision is a very critical an important decision…
A lot of capital budgeting techniques are used to analyze the capital investments among them the most popular ones are net present value and internal rate of return. The net present value can be described as the excess of present value of cash inflow over the present value of cash out flow (Bringham and Ehrhardt, 2010, p.383). In this project the investment decision has been taken by both net present value method and the internal rate of return method. The incremental cash flows have been prepared with the help of the projected sales and costs figures. While computing the incremental cash flows the expenses regarding the research and other expenses done before the implementation of the project as these expenses are sunk costs and does not depend upon the implementation of the project. The main calculations have been done on the base or most likely projections. The tax shield which is required to calculate the cash flows have been computed as per the tax provisions as the main objective of the analysis is to determine the exact cash flow position due to the implementation of the project. ...
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