Finance (Analysis) Essay Example | Topics and Well Written Essays - 2000 words

Finance (Analysis) - Essay Example 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. ... Modified Internal Rate of Return The MIRR gives more accurate and realistic picture of the cost and profitability of the project because this technique assumes that the positive cash flows will be reinvested at cost of capital i.e. 10% in this case. The MIRR of the project is 18% which is also greater than the cost of capital. Thus, the project should be accepted. Recommendation The company should accept the project because all the project appraisal and capital budgeting techniques used to evaluate the feasibility of the project are showing positive results and therefore the project should be accepted. If company undertakes the project, it would be able to recover its initial investment in 3.47 years (inflation adjusted) which is beneficial for the company. After 3.47 years the project will give additional future cash inflows till the end of the project. NPV of the project is also favorable and is showing the healthy earning for the company. IRR and MIRR of the project are greater th an the cost of the capital and indicating positive sign for the company to undertake the project. Profitability index of the Project is greater than 1 hence also supporting the project. Thus, the project should be accepted. MODEL DESIGN REPORT The model is prepared in Excel and it has been divided into three sections which are input, calculation, and output. All the information has been included in the input section by the user. Using input, calculation has been done through formulas and commands. The calculated result is then produced in the form of output. INPUT The model allows the user to enter the information as input in the excel sheet. The input section has been divided into seven areas. The production part comprises of price of product, units of