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Finance (Analysis) - Essay Example
Author : christian47
Finance & Accounting
Pages 8 (2008 words)
REPORT TO MANAGER The cash inflow of the project shows positive stream throughout the project but the project cannot be accepted or rejected without looking only at the cash inflows. Therefore to find out whether the project is feasible for the company or not, various capital budgeting techniques have been used…
However using discounted payback period, the company would be able to recover its initial outflow of the project in 3.47 years. The discounted payback period gives more accurate picture of the project feasibility because it takes present value of the future cash inflows (Trahan, and Gitman, 1995). Considering the investment required, the project should be accepted using the payback period technique. Net Present Value The Net present value of the project is $71,467,984. The value shows the difference between the initial outflow and present value of future cash inflow (Shapiro, 1978). Therefore, the management should undertake the project as the NPV is positive and very high so the project would increase the profitability of the company. Internal Rate of Return Internal Rate of Return of the project is calculated as 25%. This is the rate at which the net present value of all future inflows would be equal to the initial outflow of the project. It means the project is beneficial for the company because IRR is greater than the cost of capital which is 10% and therefore the project should be accepted. ...