Financial Analysis for Investment Decisions

This assignment delves into financial analysis techniques used for making informed investment decisions. It focuses on Net Present Value (NPV) and Internal Rate of Return (IRR), explaining how to calculate and interpret these metrics. Students will analyze cash flow projections for two projects and rank them based on NPV and IRR, comparing the results and identifying potential conflicts. The assignment emphasizes the importance of effective project scheduling and budgeting in maximizing business value.

Project Scheduling and
Budgeting Part 2

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1 Measurements for the Net cash flow, internal rate of returns, NPV ad Discount factor for
both the project............................................................................................................................1
2 comparing the NPV with IRR and suggestions to start operating spaceship or not................6
3 Determining the limitations of NPV and IRR as well as ranking the projects........................7
4 Presenting the column and charts.............................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Project scheduling and budgeting is significant in the development of an effective project
plan that renders a guidance in executing each and every step of the business. There are further
some other features added to bring effectiveness in the plan such as resources and timescales
(Kerzner, 2013). These section of the project covers the details of overall requirements for the
undertaken project work along with deadlines in which these tasks will be accomplished based
on their priorities. The present report is focused on the calculations of different financial terms
such as net cash flow, internal rate of return, etc. for an undertaken project. Also, advantages and
limitation of NPV and IRR will be discussed in the present report.
The project that is central to the whole work is development of the Death Star ( a gigantic
space ship which can be able to destroy entire planets) by Galactic Empire organisation. The
scheduling and budgeting is performed for the construction of mentioned ship.
1 Measurements for the Net cash flow, internal rate of returns, NPV ad Discount factor for both
the project
In terms of planning the implication as well as investments in the projects there will be
need to make the adequate analysis as well as determining the profitability of such projects.
Hence, Galactic Empire has planned two projects such as A and B which are belongs to the 20
years of investments (Potes and et.al., 2017). Therefore, there will be need to analyse the net
cash flow, IRR and NPV which will help in making the appropriate and accurate decisions by the
managers.
Net cash flow:
In accordance with determining the net cash flow of the business there will be need to
analyse and record all the cash and cash equivalent transactions (Van Heerden and Van
Rensburg, 2016). Therefore, there will be analysis based on Project A and Project B which are
need to be analysed as follows:
Project A:
Particul
ars
Initia
l
inves
1
ye
ar
2
ye
ar
3
ye
ar
4
ye
ar
5
ye
ar
6
ye
ar
7
ye
ar
8
ye
ar
9
ye
ar
10
ye
ar
11
ye
ar
12
ye
ar
13
ye
ar
14
ye
ar
15
ye
ar
16
ye
ar
17
ye
ar
18
ye
ar
19
ye
ar
20
ye
ar
1

tmen
t
Capital
costs 1000
50
0
50
0
50
0
50
0
50
0
25
0
25
0
25
0
25
0
25
0
25
0
Operatin
g cost
10
0
10
0
10
0
10
0
10
0
10
0
10
0
10
0
10
0
10
0
Operati
ng
income
Commer
cial
revenues
40
0
40
0
40
0
40
0
40
0
80
0
80
0
80
0
80
0
80
0
Docking
fees
10
00
12
50
15
62.
5
19
53.
12
5
24
41.
40
62
5
30
51.
75
78
12
5
38
14.
69
72
65
62
5
47
68.
37
15
82
03
13
59
60.
46
44
77
53
91
74
50.
58
05
96
92
38
Net cash
flow 1000
50
0
50
0
50
0
50
0
50
0
25
0
25
0
25
0
25
0
25
0
17
50
17
50
20
62.
5
24
53.
12
5
29
41.
40
62
5
39
51.
75
78
12
5
47
14.
69
72
65
62
5
56
68.
37
15
82
03
13
68
60.
46
44
77
53
91
83
50.
58
05
96
92
38
Project B:
Particul
ars
Initi
al
1
ye
2
ye
3
ye
4
ye
5
ye
6
ye
7
ye
8
ye
9
ye
10
ye
11
ye
12
ye
13
ye
14
ye
15
ye
16
ye
17
ye
18
ye
19
ye
20
ye
2

inve
stme
nt ar ar ar ar ar ar ar ar ar ar ar ar ar ar ar ar ar ar ar ar
Capital
costs 3000
20
00
Operatin
g costs 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50
Commer
cial
revenues
Advertis
ing
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
20
0
Docking
fees
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
10
00
Net cash
flow 3000
20
00
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
12
50
Interpretation: By considering these projects the net cash flows of them will be
determined as in Project (A) managers planned to make investments for 1000 in the beginning of
the period than they have reduced it 50% for the period of 1 to 5 years. Therefore, from the 6-10
years it again reduces for 50%. They have made operating cost for 100 yuan per unit from 11th
year to the ending year. On the other side, Project B has the capital costs at the beginning for
3000 and for the first year it was 2000 yuan. It also includes the operating costs and revenues
which in turn facilitated the net cash flows.
NPV: It is the helpful tool in terms of determining the Net present value of the data set
which belongs to the future cash flows (Smit and Trigeorgis, 2017). Therefore, it will be helpful
in terms of determining the profitability of such projects.
Project A:
Years Annual cash flow Discounting PV factor Cumulative
3

factors CF
1 500 0.909 454.55 1454.55
2 500 0.826 413.22 1867.77
3 500 0.751 375.66 2243.43
4 500 0.683 341.51 2584.93
5 500 0.621 310.46 2895.39
6 250 0.564 141.12 3036.51
7 250 0.513 128.29 3164.80
8 250 0.467 116.63 3281.43
9 250 0.424 106.02 3387.45
10 250 0.386 96.39 3483.84
11 1750 0.350 613.36 4097.20
12 1750 0.319 557.60 4654.81
13 2062.50 0.290 597.43 5252.24
14 2453.13 0.263 645.98 5898.22
15 2941.41 0.239 704.15 6602.37
16 3951.76 0.218 860.02 7462.39
17 4714.70 0.198 932.78 8395.17
18 5668.37 0.180 1019.51 9414.68
19 6860.46 0.164 1121.74 10536.42
20 8350.58 0.149 1241.26 11777.68
Total 44252.90 10777.68 101491.27
Initial investment 1000
NPV 100491.27
Project B:
Years Annual cash flow
Discounting
factors PV factor
Cumulative
CF
1 2000 0.909 1818.18 4818.18
2 1250 0.826 1033.06 5851.24
4

3 1250 0.751 939.14 6790.38
4 1250 0.683 853.77 7644.15
5 1250 0.621 776.15 8420.30
6 1250 0.564 705.59 9125.89
7 1250 0.513 641.45 9767.34
8 1250 0.467 583.13 10350.48
9 1250 0.424 530.12 10880.60
10 1250 0.386 481.93 11362.53
11 1250 0.350 438.12 11800.64
12 1250 0.319 398.29 12198.93
13 1250 0.290 362.08 12561.01
14 1250 0.263 329.16 12890.18
15 1250 0.239 299.24 13189.42
16 1250 0.218 272.04 13461.45
17 1250 0.198 247.31 13708.76
18 1250 0.180 224.82 13933.58
19 1250 0.164 204.38 14137.97
20 1250 0.149 185.80 14323.77
Total 25750 8.51 11323.77 217216.82
Initial investment 3000
NPV 214216.82
Interpretation: in accordance with NPV values of both the projects with describes that in
project (A) the total cumulative cash flow was determined over the 10% of discounting factor
such as 101491.27. Therefore, the initial investment for this project is for 1000 which presents
the total NPV of these cash flow as 100491.27. In Project B the initial investment was for 3000
and the total cumulative CF was 217216.82 which present the NPV for 214216.82. Therefore, it
can be said that Project B will be fruitful for Galactic Empire.
IRR:
Project A
5

IRR
Years cash flows
-1000
1 500
2 500
3 500
4 500
5 500
6 250
7 250
8 250
9 250
10 250
11 1750
12 1750
13 2062.5
14 2453.125
15 2941.40625
16 3951.7578125
17 4714.697265625
18 5668.3715820313
19 6860.4644775391
20 8350.5805969238
IRR 50.23%
Project B:
IRR
Years Cash Flows
-3000
1 2000
6

2 1250
3 1250
4 1250
5 1250
6 1250
7 1250
8 1250
9 1250
10 1250
11 1250
12 1250
13 1250
14 1250
15 1250
16 1250
17 1250
18 1250
19 1250
20 1250
IRR 49.99%
Interpretation: in order to analyse the IRR Project A is presenting 50.23% while Project
B is presenting 49.99%. Therefore, it can be said that Project A is presenting the most favourable
rate of return.
2 comparing the NPV with IRR and suggestions to start operating spaceship or not
Project A Project B
NPV 100491.27 214216.82
IRR 50.23% 49.99%
7

In terms with comparing the NPV and IRR of both the Projects it can be said that Project
B is facilitation the most appropriate NPV such as 214216.82 while Project A is presenting the
most favourable rate of returns such as 50.23%. Therefore, it can be said that both the projects
will be beneficial for the business and they must start such Spaceship operations.
3 Determining the limitations of NPV and IRR as well as ranking the projects
To present the profitability of the projects for Galactic Empire there has been analysis
based on the various planning tools such as NPV, IRR as well as determine the net cash flow of
such projects (Simunaniemi, Saarela and Muhos, 2017). There will be various limitations of such
techniques are as :
NPV: This method is used to analyse or determine the preset value of the future cash
flows. Therefore, it will be helpful for the business in terms or identifying the present value on
which they can become able to analyse the profitability of such investment as well as make
necessary changes in their business operations (Potes and et.al., 2017). Therefore, this will be
fruitful techniques for the business in terms of making the adequate estimation as planning the
forecasted costs for industrial operations.
Limitations of NPV:
 It does not consider size of project which will be problematic for organisation in terms of
performing the operations.
 It will be very complicated and difficult to determine as well as estimate cash flows for
such operations or projects (Limitations of Net Present Value, 2010).
 There will be difficulties while determining the costs factors for such projects.
Limitations of IRR:
 The calculation of the internal rate of return relies on varied number of external factors
that are unpredictable (Kerzner, 2013).
 It should be noted that on the surface, the evaluation seems easy however prediction of
cash flows hides the large assumptions.
 The assumptions involved in the internal rate of return calculations covers a major aspect
of human subjectivity that further increases the errors and biases.
8

 There are times when IRR gives conflicting outcomes as compared to NPV. This is
majorly in cases of mutually exclusive projects (DeFusco and et. al., 2015)
 A problem, multiple IRR is a big issue that occurs there is cash flow during the negative
lifetime of the project.
Project ranking:
Project Ranking NPV IRR RANK
PROJECT A 100491.27 50.23% 1
PROJECT B 21416.82 49.99% 2
4 Presenting the column and charts
NPV
NPV
0
20000
40000
60000
80000
100000
120000 100491.27
21416.82
PROJECT A
PROJECT B
IRR
9

IRR
49.85%
49.90%
49.95%
50.00%
50.05%
50.10%
50.15%
50.20%
50.25%
50.23%
49.99%
PROJECT A
PROJECT B
CONCLUSION
From the present report, it can be concluded that project scheduling and budgeting are
major aspects of business that provides a true road map for carrying operations in an appropriate
manner. In order to increase the business value, it is crucial to make effective use of financial
terms so that capital can be invested in an appropriate manner. The present report covers all
those important aspects that will assist in taking reliable capital investment decisions.
10