Computing NPV Analysis 2022

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Author’s Note

FINANCE
1
Analysis of the Problem
The analysis for the NPV which is computed for the business of Jazzy Juices
n identify the main errors which have been made in the calculations which can affect
the NPV which is computed for the business. The old machine has been replaced
and no salvage value or loss on sales for the machinery has been recorded in the
table. This issue would misstate the net income which is generated by the business.
The business has also not considered the depreciation which needs to be added
back so that non-cash adjustments can be made in respect to the same. The wrong
impact of such an item would influence the cumulative cash flows for the business
and thereby also impact the NPV and Payback period for the business.
The business has not recorded any salvage value for the old machine which
and the same needs to be added to compute the NPV for the business. The salvage
value for the new machine is also not added at the end of four year period. The
discounting rate for the project is estimated to be 8% and the same is not properly
shown in the budgets. The business has also not computed the present value for the
salvage of the new machine and therefore the same can impact the net present
value which is computed. The costs savings due to switch in machinery should be
treated as income for the business but the same Is shown to be for the first two
years and last two years it is shown to be zero. This might be wrong as the cost
savings due to application of new machinery would impact all the aspects of the net
income which would directly affect the net present value for the business.
Therefore, the above analysis shows that all aspects which are used in the
NPV computations needs to be properly displayed in the computations and the
business also needs to add back non-cash items to the net profit for the business in