Evaluation of Cash Flow Statement and Decision Process for Investment

The article evaluates the cash flow statement of a project in three different scenarios and recommends an investment decision based on NPV calculations. The cash flow position and the net present value of the project in all the three cases are positive, indicating a profitable investment. The article also recommends investing in project B for better return and better performance of the business.

Running Head: Masters of professional accounting
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Task 1:
Calculations are in attached excel file.
i) Findings:
The cash flow statement of all the three situations (normal situation, sales lower by 5%
than estimated sales and sales more than 5% than estimated sales) has been evaluated and it
has been found that in normal case, the total cash flow of the project in 10 years would be $
35,656,185 whereas at the end of the 10th year, the cash position of the company is $
10,391,562 as well as the NPV of the project would be $1,535,956. On the other hand, the
total cash flow of the project in case of 5% lower sales than the estimates sales in 10 years
would be $ 33,348,376 whereas at the end of the 10th year, the cash position of the company
is $ 10,144,484 as well as the NPV of the project would be $593,865 (Chandra, 2011).
Additionally, the total cash flow of the project in case of 5% higher sales than the
estimates sales in 10 years would be $ 37,963,994 whereas at the end of the 10th year, the
cash position of the company is $ 10,638,340 as well as the NPV of the project would be
$2,478,046. It explains that the cash flow position and the net present value of the project in
all the three cases are positive and it explains that the investment into the project would offer
huge return to the company.
It would help the company to improve the performance and the profitability level as
well as the overall position of the company would also be improved. The case explains that
the Business should invest in the “Buddy project” for sure as in case of any emergency, the
changes into the sales would not lead to the business towards losses.
ii) Decision process:
Calculations of option and option B has been referred to the excel file. On the basis of
the calculations and evaluation, it has been measured that the option B must be accepted by
the business rather than option A. the decision has been made on the basis of the NPV
calculations on both the projects. NPV is a capital budgeting techniques which explains that
whether the project would offer profits or losses to the business. It measures the cash inflow
and cash outflow of the project on the basis of present value (Brigham & Houston, 2012).
Through the calculations, it has been recognized that both the options would offer
positive return to the company but the return from project B is higher than the project A and

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thus the business should go for option B rather than option A. the net present value of option
A is $ 16,732 whereas the net present value of option B is $ 69,135. Thus, it is recommended
to the business to invest in project B for better return and better performance of the business.

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References:
Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Cengage
Learning.
Chandra, P. (2011). Financial management. Tata McGraw-Hill Education.