Business Finance: Investment Analysis Techniques for New SSHA Model

Running head: BUSINESS FINANCE
Business finance
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1BUSINESS FINANCE
Table of Contents
Introduction................................................................................................................................2
1. Non-discounted payback period.........................................................................................2
2. Profitability index...............................................................................................................2
3. Internal rate of return..........................................................................................................2
4. Net present value................................................................................................................3
5. Sensitivity analysis for price change..................................................................................3
6. Sensitivity analysis for quantity change.............................................................................4
7. Conclusion..........................................................................................................................4
8. Recommendation................................................................................................................5
Reference....................................................................................................................................6

2BUSINESS FINANCE
Introduction
The main objective of the report is to evaluate the profitability of new SSHA model
through various investment analysis technique like profitability index, payback period, NPV
and IRR.
1. Non-discounted payback period
Non-discounted payback period for the project –
Year Cash inflow Cumulative cash flow
0 $ (47,025,000.00)
1 $ 9,158,160.00 $ 9,158,160.00
2 $ 34,307,097.60 $ 43,465,257.60
3 $ 25,842,344.45 $ 69,307,602.05
4 $ 16,194,120.97 $ 85,501,723.02
5 $ 23,547,757.33 $ 109,049,480.35
Non-discounted payback period = 2 + (47,025,000 – 43.465,257.60) / (69,307,602.05 –
43,465,257.60) = 2.14 years (Gorshkov et al. 2014).
2. Profitability index
Profitability Index (PI) = PV of future cash flows / Initial investment (Leyman and
Vanhoucke 2016)
PI = $ 77,573,881.43 / 47,025,000 = 1.65
Hence, the PI of new SSHA model is 1.65.
3. Internal rate of return
IRR of the project for manufacturing new SSHA model is 19.77%