Internal Rate of Return of Engineering Projects

Running head: MANAGING FINANCIAL PERFORMANCE
1
MANAGING FINANCIAL PERFORMANCE

Running head: MANAGING FINANCIAL PERFORMANCE
Table of Contents
Question 2 Part A.......................................................................................................................3
I).............................................................................................................................................3
II)............................................................................................................................................3
iii)...........................................................................................................................................3
iv)............................................................................................................................................4
v).............................................................................................................................................4
Question 2 Part B.......................................................................................................................4
i)Net present value.....................................................................................................................4
ii) Payback period......................................................................................................................5
Discounted payback period....................................................................................................6
iii) Internal Rate of return..........................................................................................................7
iv) Recommendation..................................................................................................................7
V) Limitations............................................................................................................................7
References..................................................................................................................................9

Running head: MANAGING FINANCIAL PERFORMANCE
Question 2 Part A
I)
The contribution of the products X, Y and Z are calculated below in the table. The major
assumption while calculating the contribution is that the variable costs includes only the cost
of the raw materials, as the other costs are similar and continue for each product. This tends
to be the fixed costs amounting to £144 and £72. Hence, the contribution is £288, £192 and
£120 respectively for the products x, y and z (Bogicevic, Domanovic and Krstic, 2016).
Particulars X Y Z
Sales 432 288 216
less: variable cost 144 96 96
Contribution 288 192 120
2
II)
The company must cease the production of the product Y, as the contribution might be
positive but the effect of the fixed costs cannot be eliminated. Hence, product Y shall not be
continued. Also, the overall loss which the company is required to bear is also one of the
reasons, why product Y shall be discontinued (Gallo, 2019).
iii)
The company shall also cease the production of product Z, as it only generates the loss for the
company. The costs of the fixed nature such as labour and overheads cannot be avoided and
hence, the product will not generate any kind of the profits. This would reduce the capability
of the company and the loss incurred by the company shall be avoided as the profits that are
arising from product X will result in the overall loss to the company. Therefore, the company
must take the decision to stop the product (Gallo, 2019).