Business Finance SSHA by Booli Electronics

Added on - 14 Jun 2021

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Running head: BUSINESS FINANCEBusiness financeName of the studentName of the universityStudent IDAuthor note
1BUSINESS FINANCETable of ContentsIntroduction................................................................................................................................2Answer 1....................................................................................................................................2Answer 2....................................................................................................................................2Answer 3....................................................................................................................................2Answer 4....................................................................................................................................3Answer 5....................................................................................................................................3Answer 6....................................................................................................................................5Answer 7....................................................................................................................................7Conclusions................................................................................................................................7Answer 8....................................................................................................................................7Recommendations......................................................................................................................7Reference....................................................................................................................................8
2BUSINESS FINANCEIntroductionThe main objective of the report is to analyse the acceptability of the project that isnew SSHA by Booli Electronics. The acceptability will be evaluated through computing thepayback period, profitability index, internal rate of return and net present value of the project.Further, the report will analyse the sensitivity of net present value with respect to changes insales price and changes in sales quantity.Answer 1Non-discounted payback periodThis method is used under capital budgeting to measure the payback period of anyproject. However, the main disadvantage of the method is that is does not takes intoconsideration the time value of money factor and further ignores the amount receivable afterpayback period (Baucells and Borgonovo 2013). As per the calculation the non-discountedpayback period of ne SSHA project is 2.21 years.Answer 2Profitability index (PI)This index identifies the correlation among the costs and benefits of proposed project(Pasqual, Padilla and Jadotte 2013). The calculated profitability index for new SSHA projectis 1.72.Answer 3Internal rate of return (IRR)
3BUSINESS FINANCEIRR is the rate of interest at which the cash inflows of the projects equals to the cashoutflows of the project. In other words the net cash flow becomes zero. As per the calculationthe IRR of new SSHA project is 20.75%.Answer 4Net present value (NPV)NPV presents the expected cash flows from any project and while computing theexpected cash inflows the initial cash outflows are deducted from it to analyse the project’sacceptability (Leunget al. 2014). Project is accepted if the NPV is positive and not acceptedwhere the NPV is negative. NPV of new SSHA project is $ 32,544,049.64.Answer 5Sensitivity analysis with regard to changes in sales priceEconomic and financial analysis for cost-benefit of any project is depended upon theforecasting of quantifiable variables. The values of those variables are projected on the basisof most expected factors like changes in the sales price or changes in the sales volume orquantity (McAuliffe 2015). These are influenced by large number of factors and actual valuecan significantly vary from the expected values. Therefore, it is important to take intoconsideration the impact of expected changes with regard to the key variables. Sensitivityanalysis mainly focuses on the evaluation of impacts likely to take place due to the variableson the NPV of the project that is used for measuring the viability of the project (Butleret al.2014).Sensitivity analysis is the method of analysing the effect of changes in the projectvariables on the most expected case. Generally the unfavourable changes are taken into
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