Capital Budgeting Techniques for the Project - Finance

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Author’s Note:

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FINANCE
Table of Contents
Memorandum...................................................................................................................................2
Findings and Recommendations......................................................................................................3
Reference.........................................................................................................................................6
Appendix..........................................................................................................................................7

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FINANCE
Memorandum
Memo to: Board of Directors
Company: Pinto Limited
From: Author
Subject: Capital Budgeting Techniques for the Project
Date: 25/04/2018
As per the case, the management of the Pinto ltd is planning to invest in a project which can
establish the company in a new product market. For the purpose of estimating the worth of
investing in the project, financial analysis of the same is to be conducted (Titman, Keown and
Martin 2017). For the purpose of undertaking the project, an investment worth $150,00,000 in
plant and machinery is to be made by the company. In addition to this, the company will be
requiring an additional working capital of $ 30,00,000. The total outflow of cash or initial
investment which the management of the company is require to make is about $ 180,00,000. The
various assumptions which are taken for the calculation and financial analysis are that the there
is an increase in the overall sales volume, sales price as well as the operating costs of the
company in relation to the new project. it is also assumed that the weighted average cost of
capital of the company is 10% and there is no change in the same over the period of five years.
For the purpose of financial analysis, the various techniques which are used are NPV
analysis, Profitability Index, Payback Period, Discounted Payback period and IRR approach. As
per the NPV analysis the net present value of the cash inflows from the project should be more
than the net present value of the cash outflow (Jain, Singh and Srivastava 2013). In the case of
the new project which the management of Pinto ltd is planning to invest in has a net present
value as calculated to about $ 55,96,502. As per profitability Index, the technique measures the