Finance & Accounting
Pages 3 (753 words)
During the current financial year, Koolson plc has decided to introduce a new plant for the purpose of introducing a new product in the market. For the purpose of appraising the investment, NPV and payback period technique was used. Following is the investment appraisal calculation (a) Years Particulars 0 1 2 3 4 Sales (in units) 50,000 60,000 55,000 40,000 Sales Revenue - 2,500,000 3,300,000 3,327,500 1,600,000 Direct Material - (500,000) (600,000) (550,000) (400,000) Direct Labor - (600,000) (720,000) (660,000) (480,000) Marketing expense - (100,000) (100,000) (200,000) (200,000) Working Capital (200,000) - - - - Machine (3,500,000) - - - - Sale proceed on scrap - - - - 250,000 Net Cash
e investment appraisal analysis, all of the investment appraisal technique presents the fact that the capital expenditure decision can be fruitful for the company. If we consider the first investment appraisal technique of NPV (i.e. Net Present Value) it is obvious that the NPV of the investment decision is positive. Initially the total investment outlay is € 3.7 million which appears to be a substantial amount of investment, but gradually the investment can be seen to earn return. ...