Capital Budgeting PROJECT ANALYSIS - Essay Example

The company’s target market will be the students and friends of the college. The students will be offered the skis at a discounted rate of $250, and the outsiders will purchase the skis at $600. Since the project will be generating revenue, there will be no need of finding other means of funding as the project’s operations are anticipated to generate enough revenue that will be ploughed back as a means of funding. The project was selected for the following reasons: First, project will be beneficial to college in terms of learning and management to the students because they will be exposed to a real-time work environment.

The students of Westminster will use the company for their internships where they will be in a position to learn various management and production skills. The company is anticipated to have a stable management that will perform efficiently and effectively because of support and supervision that will be offered by the College’s Centre for Entrepreneurs and the Company’s Board of Directors. If the project is successful, it will benefit the college first, in terms of revenue generation and second, as part of the college the capital invested back into the business will subsequently also increase the asset value of the college.

A careful analysis was carried out to inspect the viability of the project in terms of revenue generation, costs, payback, depreciation, rate of returns, and the projects net present value. Initial costs First, an assessment of the costs and commitments that the project will undertake will be as follows. In acquiring the company, the College will incur Total Capital Cost of $ 15,200.35. This amount is inclusive of the equipment and material cost of $15,000 that are required for the continuation of business.

The equipment is valued at current market value, and it includes a $2,400 purchase order contract. The costs also involve the total transportation costs of $200, which will be employed in the moving truck and labor transport costs. The estimated costs for a single product are computed inclusive of all necessary materials and it is found that for each product to be manufactured the company will be spending $108. The company additionally spends an extra $100 for maintenance purposes. Labor costs have been computed as part of the company’s operating costs, and it is estimated for every three students working for the company, 10 hours a day at a rate of $8 will be costing the company a total of $240 dollars or simply $80 dollars each.

Depreciation Factoring depreciation into the investment, it estimated that for the initial investment value to have a fair value of $0, it would take approximately 8 years. The company experiences a sharp depreciation in the second year because this is the estimated time when most of the initial investment materials will be depleted. Cash flow A budget analysis for the company is carried for the first eight years when it is estimated that the fair value of investment will be zero. For the eight years, the company is estimating to have minimum revenue of $10,800.

The revenue is generated through a customer base comprising of students and friends of the college who will be buying the skis on a year basis. The students are estimated to buy the skis at a price of $400. The price is discounted because the students are also involved in the manufacturing process. The outsiders will be buying the skis at $600. The estimated revenues the company will