Transport Appraisal: Economic Evaluation

Running head: BUSINESS FINANCE
Business Finance
Name of the Student:
Name of the University:
Authors Note:

1
BUSINESS FINANCE
Table of Contents
1. Identifying the relevant items been omitted from the list provided by the accountant in
Exhibit 3:....................................................................................................................................2
2. Preparing the incremental cash flow table for most likely situation:.....................................3
3. Based on the overall estimates calculating the NPV, internal rate of return (IRR) and
profitability index (PI) of the project, when the payback rule with cut-off period of five years
is used by the company:.............................................................................................................6
4. Showing the sensitivity analysis of both worst and best case scenario provided in exhibit 1:
....................................................................................................................................................8
5. Using the data from worst, most-likely and best-cases of sales quantity deriving expected
sales, standard deviation and coefficient variance:..................................................................14
6. Changing the minimum annual increase in sales for making the project worthwhile:........14
7. Depicting whether using high discount rate is viable for using in the project with an
inflation rate of 3%:.................................................................................................................14
8. Providing relevant recommendation for the production of 10-in and 12-in Pipe:...............15
Reference and Bibliography:....................................................................................................17

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BUSINESS FINANCE
1. Identifying the relevant items been omitted from the list provided by the accountant
in Exhibit 3:
From the overall evaluation of the accounts depicted in exhibit 3, indirect labour and
space account is extra in the overall evaluation of the project. Omitting both the account
would eventually help in identifying the actual cash flow of the organisation, which could be
used in determining relevant profitability. This could eventually help in identifying viable
cash flow, which could be used in determining relevant investment appraisal techniques for
detecting viability of the project (Baum & Crosby, 2014). The overall indirect expense
account mainly represents salary of supervisor, which is adequately stated in the case study
that no extra supervisor will be appointed. The current supervisor that is using of conducting
activities in the organisation will be employed for the new project. Furthermore, the space
amount was directly inclusive of rent, which will not be paid for the current project as
depicted in the case study. The firm will use empty space in the current factory outlet, which
will nullify the expenses of space account.

3
BUSINESS FINANCE
2. Preparing the incremental cash flow table for most likely situation:
Particulars 0 1 2 3 4 5 6 7 8
Initial investment $ 1,000,000
Unit selling price 0.56 0.58 0.59 0.61 0.63 0.65 0.67 0.69
Annual sales 1,650,0
00
1,699,5
00
1,750,4
85
1,803,0
00
1,857,0
90
1,912,8
02
1,970,18
6
2,029,2
92
Revenue 924,
000
980,
272
1,039,9
70
1,103,3
04
1,170,4
96
1,241,7
79
1,317,40
3
1,397,6
33
Raw materials $544,500 $560,835 $577,660 $594,990 $612,840 $631,225 $650,161 $669,666
Distribution cost $33,000 33,
990
35,0
10
36,0
60
37,1
42
38,2
56
39,40
4
40,5
86
Direct labour $40,000 41,
200
42,4
36
43,7
09
45,0
20
46,3
71
47,76
2
49,1
95
On costs $11,520 11, 12,2 12,5 12,9 13,3 13,75 14,1