New Product Project Viability Analysis

This assignment examines the financial viability of a new product project using Net Present Value (NPV) and Internal Rate of Return (IRR). It presents a detailed analysis, considering both scenarios with and without contract manufacturing sales. The case study evaluates factors like revenue projections, cost of capital, and operational expenses to determine the project's profitability over six years. The analysis also highlights limitations such as fixed inflation rates and potential challenges in inventory management and labor costs. Ultimately, the assignment recommends whether the board should initiate the new product project based on its financial performance.

Running head: CORPORATE FINANCIAL MANAGEMENT
Corporate Financial Management
Name of the Student:
Name of the University:
Authors Note:

CORPORATE FINANCIAL MANAGEMENT
1
Table of Contents
1. Evaluating the NPV and IRR of the project after tax cash flow:...........................................2
2. Depicting NPV and IRR of the project without contract manufacturing sales:.....................5
3. Depicting recommendations to the board regarding the new project with and without
contract manufacturing sales:.....................................................................................................9
Reference:................................................................................................................................12

CORPORATE FINANCIAL MANAGEMENT
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1. Evaluating the NPV and IRR of the project after tax cash flow:
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Total Initial
investment
$ 1,335,000.00 0 0 0 0 0 0
Sales forecast
New Product $
1,970,000.
00
$
2,470,000.
00
$
3,220,000.
00
$
3,284,400.
00
$
3,350,088.
00
$
3,417,089.
76
Contract
Manufacturing
$
315,000.0
0
$
365,000.00
$
440,000.00
$
448,800.00
$
457,776.00
$
466,931.52
Total sales $
2,285,000.
00
$
2,835,000.
00
$
3,660,000.
00
$
3,733,200.
00
$
3,807,864.
00
$
3,884,021.
28
Raw Material

CORPORATE FINANCIAL MANAGEMENT
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Cost
New Product $
(591,000.0
0)
$
(741,000.0
0)
$
(966,000.0
0)
$
(985,320.0
0)
$
(1,005,026.
40)
$
(1,025,126.
93)
Contract
Manufacturing
$
(78,750.00
)
$
(91,250.00
)
$
(110,000.0
0)
$
(112,200.0
0)
$
(114,444.0
0)
$
(116,732.8
8)
Total Cost $
(669,750.0
0)
$
(832,250.0
0)
$
(1,076,000.
00)
$
(1,097,520.
00)
$
(1,119,470.
40)
$
(1,141,859.
81)
Operating Income $
1,615,250.
00
$
2,002,750.
00
$
2,584,000.
00
$
2,635,680.
00
$
2,688,393.
60
$
2,742,161.
47
Other deductions
Wage rate $
150,000.0
$
153,000.00
$
156,060.00
$
159,181.20
$
162,364.82
$
165,612.12

CORPORATE FINANCIAL MANAGEMENT
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0
Factory overheads $
411,300.0
0
$
510,300.00
$
658,800.00
$
671,976.00
$
685,415.52
$
699,123.83
Part replacement $
15,000.00
$
30,000.00
$
30,600.00
$
31,212.00
$
31,836.24
Inventory
increment
$
150,000.0
0
Advertisement
expenses
$
375,000.0
0
$
375,000.00
$
300,000.00
$
150,000.00
$
150,000.00
$
150,000.00
Depreciation $
210,000.0
0
$
210,000.00
$
210,000.00
$
210,000.00
$
210,000.00
$
210,000.00
Salvage value $

CORPORATE FINANCIAL MANAGEMENT
5
200,000.00
Interest on loan $ 92,028.00 $
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
Total deductions $ 92,028.00 $
1,388,328.
00
$
1,355,328.
00
$
1,446,888.
00
$
1,313,785.
20
$
1,331,020.
34
$
1,548,600.
19
EBT $ (1,427,028.00) $
226,922.0
0
$
647,422.00
$
1,137,112.
00
$
1,321,894.
80
$
1,357,373.
26
$
1,193,561.
28
Tax@30% 0 $
68,076.60
$
194,226.60
$
341,133.60
$
396,568.44
$
407,211.98
$
358,068.38
EAT $ (1,427,028.00) $
158,845.4
0
$
453,195.40
$
795,978.40
$
925,326.36
$
950,161.28
$
835,492.90
Total Cash flow $ (1,427,028.00) $
368,845.4
$
663,195.40
$
1,005,978.
$
1,135,326.
$
1,160,161.
$
1,045,492.

CORPORATE FINANCIAL MANAGEMENT
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0 40 36 28 90
NPV $ 1,734,552.42
IRR 46%
Payback period 2.39 years
2. Depicting NPV and IRR of the project without contract manufacturing sales:
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Total Initial investment $ 1,335,000.00 0 0 0 0 0 0
Sales forecast
New Product $
1,970,000.00
$
2,470,000.00
$
3,220,000.00
$
3,284,400.00
$
3,350,088.00
$
3,417,089.76
Total sales $
1,970,000.00
$
2,470,000.00
$
3,220,000.00
$
3,284,400.00
$
3,350,088.00
$
3,417,089.76
Raw Material Cost
New Product $ $ $ $ $ $

CORPORATE FINANCIAL MANAGEMENT
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(591,000.00) (741,000.00) (966,000.00) (985,320.00) (1,005,026.40
)
(1,025,126.93)
Total Cost $
(591,000.00)
$
(741,000.00)
$
(966,000.00)
$
(985,320.00)
$
(1,005,026.40
)
$
(1,025,126.93)
Operating Income $
1,379,000.00
$
1,729,000.00
$
2,254,000.00
$
2,299,080.00
$
2,345,061.60
$
2,391,962.83
Other deductions
Wage rate $
150,000.00
$
153,000.00
$
156,060.00
$
159,181.20
$
162,364.82
$
165,612.12
Factory overheads $
354,600.00
$
444,600.00
$
579,600.00
$
591,192.00
$
603,015.84
$
615,076.16
Part replacement $
15,000.00
$
30,000.00
$
30,600.00
$
31,212.00
$
31,836.24
Inventory increment $
150,000.00

CORPORATE FINANCIAL MANAGEMENT
8
Advertisement
expenses
$
375,000.00
$
375,000.00
$
300,000.00
$
150,000.00
$
150,000.00
$
150,000.00
Depreciation $
210,000.00
$
210,000.00
$
210,000.00
$
210,000.00
$
210,000.00
$
210,000.00
Salvage value $
200,000.00
Interest on loan $ 92,028.00 $
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
Total deductions $ 92,028.00 $
1,331,628.00
$
1,289,628.00
$
1,367,688.00
$
1,233,001.20
$
1,248,620.66
$
1,464,552.52
EBT $ (1,427,028.00) $
47,372.00
$
439,372.00
$
886,312.00
$
1,066,078.80
$
1,096,440.94
$
927,410.31
Tax@30% 0 $
14,211.60
$
131,811.60
$
265,893.60
$
319,823.64
$
328,932.28
$
278,223.09
EAT $ (1,427,028.00) $
33,160.40
$
307,560.40
$
620,418.40
$
746,255.16
$
767,508.66
$
649,187.22

CORPORATE FINANCIAL MANAGEMENT
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Total Cash flow $ (1,427,028.00) $
243,160.40
$
517,560.40
$
830,418.40
$
956,255.16
$
977,508.66
$
859,187.22
NPV $ 1,125,966.32
IRR 36%
Payback period 2.8 years