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Financial Management Superior Manufacturing
Pages 2 (502 words)
From the answers in number 2, it can be seen that the total investment in the project can be recouped in a span of 6.13 years. The analysis also shows that the project has a positive net present value. Using the net present value alone, the company should accept the project as it will yield profit for them at a cost of capital of 10%.
If the project requires additional investment in land and building, the cash flow will significantly changed. The land and the building will be requiring additional outflow. The land, being an asset whose value appreciates over time will have a higher disposable value at the end of the project's value. Meanwhile, the building will be depreciated to account for the natural wear and tear. At the end of the project's life, the building can be sold according to its salvage value. If these considerations are taken into account, the project will only be accepted if the present value of the salvage value of land and building will be able to offset the present value of their acquisition cost.
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