Financial Analysis of Booli Electronic

This report evaluates the investment projects of Booli Electronic Company using capital budgeting tools such as NPV, IRR, and payback period. It provides recommendations based on the analysis.

Booli electronic
Financial analysis
Report
Name of the Student
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1 | P a g e Financial analysis
Table of Contents
Introduction................................................................................................................................2
ANSWER TO QUESTION NO-uestions..................................................................................2
ANSWER TO QUESTION NO-1. Non-discounted payback period.....................................2
ANSWER TO QUESTION NO-.2 Profitability index...........................................................2
ANSWER TO QUESTION NO-.3 IRR of the project...........................................................3
ANSWER TO QUESTION NO-.4 NPV of the project.........................................................4
ANSWER TO QUESTION NO-.5.........................................................................................5
ANSWER TO QUESTION NO-.6.........................................................................................5
ANSWER TO QUESTION NO-.7.........................................................................................5
ANSWER TO QUESTION NO-.8.........................................................................................6
Conclusion..................................................................................................................................6
Recommendation........................................................................................................................7
References..................................................................................................................................8
Appendices...............................................................................................................................10
Appendix 1...........................................................................................................................10
Appendix 2...........................................................................................................................10
Appendix 3...........................................................................................................................10
Appendix 4...........................................................................................................................11

2 | P a g e Financial analysis
Introduction
With the increasing ramified economic changes each and every company needs to use
effective capital budgeting technique to make the better and effective decisions. In this
report, capital budgeting tools will be used to identify the better investment decisions.
The main aim of this report is to evaluate the investment projects by using the different
capital budgeting tools such as NPV IRR and payback period. In this report, Booli
Electronic Company has been considered which will use several investment tools to
determine the best investment options.
ANSWER TO QUESTION NO-
ANSWER TO QUESTION NO-1. Non-discounted payback period
It is method which ignores the time value of money while calculating the payback
period for the initial investment made by investors. It shows that the time required
covering the initial investment.
In Booli Electric, discounted payback period is 2.9 years (See the attached Appendix)
It shows that Booli should accept the projects as amount invested covers in less time.
ANSWER TO QUESTION NO-.2 Profitability index
The profitability index is the index which showcases the profit of company. It is used
mainly to give the ranking of the projects at one time. It is a useful tool for ranking the
various projects at a time. It is calculated by summation of the cash outflow and net
present value divided by the cash outflow (Žižlavský, 2014).

3 | P a g e Financial analysis
Formula for the profitability index
Profitability index= Present value of Future cash flow/ Initial Investment
It is analyzed that if the profitability index is more than the project that will be
accepted by the business. In Booli, profitability index is 1.97 times (It is way more and
will add value to the business)
Inferred
The project SSHA should be accepted by company as it will give profitability index
more than 1
ANSWER TO QUESTION NO-.3 IRR of the project
Internal rate of return
It is the rate of return required for the project.
Internal rate of return is determined on the basis of present internal factors.
IRR of the Booli Electronic is 30.50 (Refer Appendix 3).
If SSHA project is accepted then it will increase the overall outcomes of the project as
it will offer higher return to company than its IRR (Rossi, 2015).
ANSWER TO QUESTION NO-.4 NPV of the project
NPV is also known as net present value which reflects the differences between the
present value of cash inflow and present value of cash outflow.
It should be positive if company want to accept the particular project.
If Booli is having positive NPV then it will add value to its wealth maximization.

4 | P a g e Financial analysis
Formula to compute NPV=
Where,
Ct = net cash inflow during the period t
Co = total initial investment costs
r = discount rate, and
t = number of time periods
It is evaluated that positive NPV shows that company will add value to its investment
if it has positive NPV in particular project.
Net present valeu shows the higher amount of presetn valeu of cash inflow as
comapred to prasetn valeu of ash outflwo.
Booli Company comes out to be $439, 28,233 (See Appendix 2).
Company should accept this project and expand its business in long run (Bierman &
Smidt, 2014).
ANSWER TO QUESTION NO-.5
NPV is sensitive to change in the prices. It is used to determine the future cash inflow
and predict the viability of the undertaken project. This busienss is accompanied with
the risk and opportunity which could be gauged by using the NPV and IRR investment
tool. If selected project gives more cash inflow as compared to cash outflow then it will
add value to organization and should be accepted (Petković, et al., 2016).

5 | P a g e Financial analysis
Changes in NPV
NPV after sensitivity 89229843.67
NPV before sensitivity 83757614.44
Diff.. 5472229.228
(Please see the attached excel file Appnedix-5)
It is observed that there will be changes in NPV by $ 5472229.228if price of the goods
and units sales change by inflation rate 2 %.
ANSWER TO QUESTION NO-6
The changes in the net present value have happened due to the increased sales of the
business. Overall sales of the Booli have increased due to the acceptance of the SSHA
projects in business.
If the SSHA projects increases the sales of its project then it will eventually increases
the profitability of the business and will add value to the business future growth (De
Andrés, de Fuente, and San Martín, 2015).
Changes in NPV
NPV after sensitivity $ 84490399.65
NPV before sensitivity $ 83757614.44
Differences $ 732785.2134
(Please see the attached Appnedix-6)
It is observed that there will be changes in NPV by $ 732785.2134 units sales change by
inflation rate 2 %.

6 | P a g e Financial analysis
ANSWER TO QUESTION NO-7
After analysing all the details, it could be inferred that the Booli Electronic slaes have
been increased in the initial year. The positive trend of the business growth and adoption
of new projects will increases the overall output of the busienss.
The project should be accepted as it will give good amount of cash inflow.
The present NPV of the Booli would be $439, 28,233 is earned by the company from
this product. (Grant, 2016).
ANSWER TO QUESTION NO-8
 It could be inferred that the overall sales of Booli Electronic will decrease if
company will go for other project investment model.
 SSHA increases the overall production and strengthen the product quality
which helps company to create Core Company in market.
 The increasing trend of overall turnover due to the introduction of SSH project
will increase the cash inflow in business (Doss, et al., 2015).
Conclusion
After analysing the project available for the Booli by using the capital budgeting tool
it could be inferred that company should accept the project for its business expansion.
The profitability index of the project is also more than 1 and it gives positive NPV. Of
SSHA products is sold in market then it will increases the sales and overall profitability
of the business at large. Booli Company should company should opt for the SSHA
product to expand its busienss.
Recommendation

7 | P a g e Financial analysis
The Booli Electronic should accept the SSHA project to expand its business.
It will give profitable situation in business and it will also offer good amount of
profitability throughout the time.
If Booli wants to increase its overall production level then it should lower down the
price of its products.

8 | P a g e Financial analysis
References
De Andrés, P., de Fuente, G. and San Martín, P., 2015. Capital budgeting practices in
Spain. BRQ Business Research Quarterly, 18(1), pp.37-56.
Doss, D.A., Jones, D.W., Sumrall, W., Henley, R., McElreath, D., Lackey, H. and Gokaraju,
B., 2015. A net present worth analysis of considered academic programs at a private, regional
higher education institution. Journal of Interdisciplinary Studies in Education, 4(1), p.55.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley &
Sons.
Petković, D., Shamshirband, S., Kamsin, A., Lee, M., Anicic, O. and Nikolić, V., 2016.
Survey of the most influential parameters on the wind farm net present value (NPV) by
adaptive neuro-fuzzy approach. Renewable and Sustainable Energy Reviews, 57, pp.1270-
1278.
Rossi, M., 2015. The use of capital budgeting techniques: an outlook from Italy. International
Journal of Management Practice, 8(1), pp.43-56.
Sari, I.U. and Kahraman, C., 2015. Interval type-2 fuzzy capital budgeting. International
Journal of Fuzzy Systems, 17(4), pp.635-
Žižlavský, O., 2014. Net present value approach: method for economic assessment of
innovation projects. Procedia-Social and Behavioral Sciences, 156, pp.506-512.

9 | P a g e Financial analysis
Appendices
Appendix 1
Calculation of payback period
Payback (normal)
Year 0 1 2 3 4 5
Cash
Flows
- 451,75,000 19081000 33170600 24821411.2 17705685.7 25576914.9
Cumulati
ve Owing
-
260,94,000 70,76,600 318,98,011 496,03,697 751,80,612
Payback period = 1.2 years
Discounted Payback
Rate 11%
Year 0 1 2 3 4 5
Cash Flows -
451,75,000
19081000 44697237.5 28759679.05 15093687.5 9722318.60
PV of Cash
Flow
-
451,75,000
17190090.0 26922003.0 18149201.98 11663283.6 15178654.1
Cumulative
Owing
-
279,84,910
-
10,62,907 170,86,295 287,49,579 439,28,233
Appendix 2
Calculation of Net Present Value
NPV
Rate 11%
Year 0 1 2 3 4 5
Cash Flows - 451,75,000 19081000 33170600 24821411.2 17705685.7 25576914
Discount
Factor
1.0000
0.9009 0.8116 0.7312 0.6587
0.5935
Present
Value
- 451,75,000
171,90,090 269,22,003 181,49,202 116,63,284
151,78,654
NPV $439,28,233
NPV $439,28,233 Using NPV function the correct way
Appendix 3
Calculation of IRR

10 | P a g e Financial analysis
Year 0 1 2 3 4 5
Cash
Flows
-
451,75,000
171900
90
269220
03
181492
02
116632
84
15178654.
14
NPV $439,28,233
Using IRR Function
IRR 30.50%
Calculation of Profitability
Index
(NPV+ initial investment)/Initial
investment
NPV $439,28,2
33
Initial
Investment
45175000
PI 1.97
Appendix 4
Calculation of Cash inflows
Year
Particular 1 2 3 4 5
Sales (in units) 85000 136000 102000 74000 63000
Price 685 702.125 719.678125 737.670078 756.1118301
Total sales 58225000 95489000 73407168.7 54587585.8 47635045.29
(-) Variable Costs @
315
26775000 43911000 33756581.2 25102320.5 21905166.81
Contribution 31450000 51578000 39650587.5 29485265.3 25729878.48
(-) Fixed Cost 7020000 7020000 7020000 7020000 7020000
Net Profit 24430000 44558000 32630587.5 22465265.3 18709878.48
(-)Depreciation 6600000 6600000 6600000 6600000 6600000
Net Profit before Tax 17830000 37958000 26030587.5 15865265.3 12109878.48
(-) Tax @30% 5349000 11387400 7809176.25 4759579.59 3632963.544
Net Profit after tax 12481000 26570600 18221411.2 11105685.7 8476914.936
(+) Depreciation 6600000 6600000 6600000 6600000 6600000
Cash Inflows 19081000 33170600 24821411.2 17705685.7 15076914.94
(+) Salvage Value - - - - 10500000
Cash Inflows 19081000 33170600 24821411.2 17705685.7 25576914.94
*Present value factor 0.9009009 0.8116224 0.731191 0.658730 0.5934513

11 | P a g e Financial analysis
@11%
Present Value 17190090. 26922003. 18149201.9 11663283.6 15178654.14
Total Present
values(A)
89103232.89
(-)Cash Outflows
Additional expenses 1125000
(+)Marketing expenses 550000
(+)Cost of capial 43500000
Total(B) 45175000
Net Present Value(A-
B)
43928232.89
Appendix-5
Year
Particular 1 2 3 4 5
Sales (in units) 92000 142000 108000 71000 62000
Price 687.00 714.48 743.06 772.78 803.69
Total sales 63204000
10145616
0
80250393.
6
54867491.
33
49828955.
5
(-) Variable Costs 28980000 45624600 35394408
23733916.
92
21139900.
08
Contribution 34224000 55831560
44855985.
6
31133574.
41
28689055.
42
(-) Fixed Cost 6500000 6500000 6500000 6500000 6500000
Net Profit 27724000 49331560
38355985.
6
24633574.
41
22189055.
42
(-)Depreciation
43842857.
14
43842857.
14
43842857.
14
43842857.
14
43842857.
14
Net Profit before Tax
-
16118857.
14
5488702.8
57
-
5486871.5
43
-
19209282.
73
-
21653801.
72
(-) Tax @28% -4513280
1646610.8
57
-
1646061.4
63
-
5762784.8
2
-
6496140.5
17
Net Profit after tax
-
11605577.
14 3842092
-
3840810.0
8
-
13446497.
91
-
15157661.
21
(+) Depreciation
43842857.
14
43842857.
14
43842857.
14
43842857.
14
43842857.
14
Cash Inflows 32237280
47684949.
14
40002047.
06
30396359.
23
28685195.
94
(+) Salvage Value 9500000
Cash Inflows 32237280
47684949.
14
40002047.
06
30396359.
23
38185195.
94
*Present value factor
@12% 0.893 0.797 0.712 0.636 0.567
Present Value 28783285. 38014149. 28472666. 19317435. 21667305.

12 | P a g e Financial analysis
71 51 97 81 67
Total Present
values(A)
136254843
.7
(-)Cash Outflows
Additional expenses 1175000
(+)Marketing expenses 650000
(+)Cost Of equipment 45200000
Total(B) 47025000
Net Present Value(A-
B)
89229843.
67
Changes in NPV
NPV after sensitivity 89229843.67
NPV before sensitivity 83757614.44
Diff.. 5472229.228
Appendix-6
Sensitivity analysis for the products
Year
Particular 1 2 3 4 5
Sales (in units) 92000 1,43,420 1,09,080 71,710 62,620
Price 687.00 700.74 714.75 729.05 743.63
Total sales 63204000
10050013
0.8
77965453.
58
52280168.
04
46566166.
58
(-) Variable Costs 28980000 46080846
35748352.
08
23971256.
09
21351299.
09
Contribution 34224000
54419284.
8
42217101.
5
28308911.
95
25214867.
49
(-) Fixed Cost 6500000 6500000 6500000 6500000 6500000
Net Profit 27724000
47919284.
8
35717101.
5
21808911.
95
18714867.
49
(-)Depreciation
43842857.
14
43842857.
14
43842857.
14
43842857.
14
43842857.
14
Net Profit beforeTax
-
16118857.
14
4076427.6
57
-
8125755.6
39
-
22033945.
19
-
25127989.
65
(-) Tax @28% -4513280
1222928.2
97
-
2437726.6
92
-
6610183.5
57
-
7538396.8
95
Net Profit after tax
-
11605577.
14
2853499.3
6
-
5688028.9
47
-
15423761.
63
-
17589592.
76

13 | P a g e Financial analysis
(+) Depreciation
43842857.
14
43842857.
14
43842857.
14
43842857.
14
43842857.
14
Cash Inflows 32237280
46696356.
5
38154828.
2
28419095.
51
26253264.
39
(+) Salvage Value 9500000
Cash Inflows 32237280
46696356.
5
38154828.
2
28419095.
51
35753264.
39
*Present value factor
@12% 0.893 0.797 0.712 0.636 0.567
Present Value
28783285.
71
37226049.
51
27157853.
07
18060848.
97
20287362.
39
Total Present values(A)
131515399
.7
(-)Cash Outflows
Additional expenses 1175000
(+)Marketing expenses 650000
(+)Cost Of equipment 45200000
Total(B) 47025000
Net Present Value(A-
B)
84490399.
65
Changes in NPV
NPV after sensitivity 84490399.65
NPV before sensitivity 83757614.44
Diff.. 732785.2134