Capital Budgeting Assignment (Finance)

This assignment discusses the financial viability of different investment options in the Coolangatta Silver and Parkland Springs Water Company. It includes recommendations, analysis of NPV, IRR, and profitability index, and sensitivity and scenario analysis. The assignment is for a finance course.

Running head: CAPITAL BUDGETING ASSIGNMENT (FINANCE)
Capital Budgeting Assignment (Finance)
Name of the Student:
Name of the University:
Authors Note:

CAPITAL BUDGETING ASSIGNMENT (FINANCE)
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Table of Contents
Task #1: Coolangatta Silver.......................................................................................................2
Recommendations and discussion:............................................................................................2
Task #2: Parkland Springs Water Company..............................................................................3
Recommendations and discussion:............................................................................................3
References:.................................................................................................................................6

CAPITAL BUDGETING ASSIGNMENT (FINANCE)
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Task #1: Coolangatta Silver
Recommendations and discussion:
Particulars
The second project, the
Bundaberg Plant
The first project, the
Djakarta Plant
NPV $ 6,531,359.78 $ 17,826,139.08
IRR 16% 31%
Profitability index 1.22 1.78
From the relevant analysis, it can be detected that the overall investment appraisal
technique has mainly helped in detecting the financial viability of each investment. Further
evaluation has been conducted on overall financial viability of each project, which can help
in generating detecting the most viable investment option. from the relevant analysis, it has
been detected that Djakarta Plant is considered to be the most viable investment options in
comparison to Bundaberg Plant. The benefits that would be generated by the project is
mainly calculated by with adequate calculations and generate high level of income from
investment. Harris (2017) stated that with the help of investment appraisal techniques
companies are mainly able to improve its financial performance and reduce any kind of risk
involved in investment.
Hence, from the relevant evaluation, it has been detected that Djakarta Plant has
higher NPV, IRR and profitability index in comparison to Bundaberg Plant, whose values are
relevantly low. From the overall analysis, it has been detected that the NPV value of Djakarta
Plant is at the levels of $ 17,826,139.08, while the values of Bundaberg Plant are mainly at
the levels of $ 6,531,359.78. In the similar instance, the overall internal rate of return of
Djakarta Plant values is higher than Bundaberg Plant, which is at the levels of 31% in
contrast to 16%. Lastly, the profitability index is used for understanding the financial

CAPITAL BUDGETING ASSIGNMENT (FINANCE)
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performance of each plant, where values of Djakarta Plant is at the levels of 1.78, while
values of Bundaberg Plant is at 1.22. Hence, from the relevant evaluation, it can be detected
that investments in Djakarta Plant is relevantly appropriate, as it would generate high level of
income for Coolangatta Silver (Throsby 2016).
Task #2: Parkland Springs Water Company
Recommendations and discussion:
The investment option of Parkland Springs Water Company is mainly evaluated,
which helps in determining the overall financial viability of the investment. Further analysis
is mainly conducted for determining the performance and financial viability of the project. In
addition, relevant sensitivity analysis and scenario analysis is mainly conducted for
understanding the financial performance of the project that is being presented to Parkland
Springs Water Company (Awojobi and Jenkins 2016). Hence, pure play approach is not
being used for the analysis, as the data is relevant and provide adequate information to the
risk factors of the new project.
Sensitivity Analysis:
Sensitivity analysis
Sales $ 14,102,684.02 Fixed costs $ 14,102,684.02
$
3,417,750.00
$ 11,607,742.38 $ 56,000.00 $ 14,061,804.28
$
3,906,000.00
$ 10,443,436.28 $ 64,000.00 $ 14,042,727.06
$
4,394,250.00
$ 9,977,713.84 $ 72,000.00 $ 14,035,096.18
$
4,882,500.00
$ 9,977,713.84 $ 80,000.00 $ 14,035,096.18
$
5,370,750.00
$ 10,396,864.04 $ 88,000.00 $ 14,041,963.98
$
5,859,000.00
$ 11,318,994.47 $ 96,000.00 $ 14,057,073.13

CAPITAL BUDGETING ASSIGNMENT (FINANCE)
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$
6,347,250.00
$ 12,978,829.24 $ 104,000.00 $ 14,084,269.60
Variable costs $ 14,102,684.02 Unit sales $ 14,102,684.02
$ 0.67 $ 13,342,320.85 1,085,000.00 $ 10,847,379.21
$ 0.77 $ 12,987,484.71 1,240,000.00 $ 9,328,236.97
$ 0.86 $ 12,845,550.25 1,395,000.00 $ 8,720,580.07
$ 0.96 $ 12,845,550.25 1,550,000.00 $ 8,720,580.07
$ 1.06 $ 12,973,291.26 1,705,000.00 $ 9,267,471.28
$ 1.15 $ 13,254,321.49 1,860,000.00 $ 10,470,631.94
$ 1.25 $ 13,760,175.89 2,015,000.00 $ 12,636,321.12
The above table indicates about the overall sensitivity analysis, which has been
conducted in different factors such as sales, variable cost, fixed cost and unit sales. Therefore,
from the relevant analysis, it can be detected hat the NPV values has relevant improvements
over the period of time. The sensitivity analysis has mainly reduced the values of sales,
variable cost, fixed cost and unit sales by 30%+, which has not altered the overall NPV
values on negative stance (Higham, Fortune and Boothman 2016). Thus, it can be understood
that the fluctuations in the cost relevant factors of the project will not hamper its financial
viability and successes rate.
Scenario Analysis:
Scenario analysis-Worst Case
Initial outlay 6,000,000.00$ Year 0 1 2 3
Depreciation 2,000,000.00$ Sales 2,992,500.00$ 2,992,500.00$ 2,992,500.00$
Sales 1,050,000.00 Varibale cost (1,008,000.00) (1,008,000.00) (1,008,000.00)
Price per unit 2.85 Fixed cost (80,000.00)$ (80,000.00)$ (80,000.00)$
Varibale cost 1.20 Depreciation (2,000,000.00)$ (2,000,000.00)$ (2,000,000.00)$
Fixed cost 80,000.00$ Profit before tax 6,080,500.00$ 6,080,500.00$ 6,080,500.00$
Terminal value 920,000.00$ Tax (1,945,760.00)$ (1,945,760.00)$ (1,945,760.00)$
Cost of capital 9.59% Profit after tax 4,134,740.00$ 4,134,740.00$ 4,134,740.00$
Terminal value 920,000.00$
Total cash flow (6,000,000.00)$ 6,134,740.00$ 6,134,740.00$ 7,054,740.00$
NPV 10,065,809.68$

CAPITAL BUDGETING ASSIGNMENT (FINANCE)
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Scenario analysis-Best Case
Initial outlay 6,000,000.00$ Year 0 1 2 3
Depreciation 2,000,000.00$ Sales 7,307,500.00$ 7,307,500.00$ 7,307,500.00$
Sales 1,850,000.00 Varibale cost (1,776,000.00) (1,776,000.00) (1,776,000.00)
Price per unit 3.95 Fixed cost (80,000.00)$ (80,000.00)$ (80,000.00)$
Varibale cost 0.89 Depreciation (2,000,000.00)$ (2,000,000.00)$ (2,000,000.00)$
Fixed cost 80,000.00$ Profit before tax 11,163,500.00$ 11,163,500.00$ 11,163,500.00$
Terminal value 920,000.00$ Tax (3,572,320.00)$ (3,572,320.00)$ (3,572,320.00)$
Cost of capital 9.59% Profit after tax 7,591,180.00$ 7,591,180.00$ 7,591,180.00$
Terminal value 920,000.00$
Total cash flow (6,000,000.00)$ 9,591,180.00$ 9,591,180.00$ 10,511,180.00$
NPV 18,723,797.97$
The above calculation has directly indicated about the Worst-case and Best-case
scenario analysis, which has been conducted for determining the accurate financial
performance. The calculation has taken into consideration the overall cash inflow and
outflow, which can directly help in determining the total cash flows of the organisation. The
calculation of NPV is mainly conducted under both worst- and best-case scenario, where the
values has not reached negative levels. This directly indicates that the project is a viable
investment option for Parkland Springs Water Company, as it will help the organisation to
generate high level of income from investment (Brisley et al. 2016). Therefore, the analysis
has indicted that under both sensitivity analysis and scenario analysis investment in the
proposed project is available investment options for Parkland Springs Water Company.

CAPITAL BUDGETING ASSIGNMENT (FINANCE)
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References:
Awojobi, O. and Jenkins, G.P., 2016. Managing the cost overrun risks of hydroelectric dams:
An application of reference class forecasting techniques. Renewable and Sustainable Energy
Reviews, 63, pp.19-32.
Brisley, R., Wylde, R., Lamb, R., Cooper, J., Sayers, P. and Hall, J., 2016. Techniques for
valuing adaptive capacity in flood risk management. Proceedings of the ICE-Water
Management, 169(2), pp.75-84.
Harris, E., 2017. Strategic project risk appraisal and management. Routledge.
Higham, A.P., Fortune, C. and Boothman, J.C., 2016. Sustainability and investment appraisal
for housing regeneration projects. Structural Survey, 34(2), pp.150-167.
Throsby, D., 2016. Investment in urban heritage conservation in developing countries:
Concepts, methods and data. City, Culture and Society, 7(2), pp.81-86.