Project Evaluation for AllCure Inc.

The report outlines two investment proposal i.e T-REC and P-REC and the feasibility study on the basis of various parameters. In this regard, an in-depth analysis has been conducted in the report to understand both qualitative and quantitative aspect of the project.

PROJECT EVALUATION FOR ALLCURE INC.

Executive Summary
The report outlines two investment proposal i.e T-REC and P-REC and the feasibility
study on the basis of various parameters. In this regard, an in-depth analysis has been
conducted in the report to understand both qualitative and quantitative aspect of the
project.
The parameter that have been analysed in the report includes:
(a) Net Present Value;
(b) Profitability Index;
(c) Internal Rate of Return;
(d) Discounted Payback Period
On the basis of above results and considering qualitative aspect of the project final
conclusion has been reached i.e. both projects are feasible when discounted @ 18%.
However, Project T-REC is not feasible @24%. The detailed report has been
presented here-in-below.

TABLE OF CONTENT
Executive Summary...............................................................2
Introduction..........................................................................4
Findings.................................................................................4
4.1 Quantitative Findings (P-REC).....................................4
4.2 Quantitative Findings (T-REC)......................................8
4.3 Qualitative Findings...................................................10
Recommendation and Justifications...................................11
Detail Comparison and Further Recommendation.............11
Conclusion...........................................................................11

Introduction
The report deals with detailed analysis of the two projects that have been proposed to
be undertaken by the company i.e. T-REC and P-REC on various parameters. The
project has been conducted to understand whether to undertake the project, if yes,
which project should be undertaken and then evaluation of such project on the
qualitative parameters.
Findings
4.1 Quantitative Findings (P-REC)
Before analysing the findings made in Appendix attached to the document, it shall be
important to understand assumptions which are undertaken to understand the results
better:
(a) Expenditure incurred towards training expense of human resource is a capital
expenditure and the same is not depreciable. Further, no tax benefit is available on
same;
(b) The duration of project is 8 years;
(c) Renovation cost is depreciable and has been depreciated over 8 years
(d) The asset has been sold at the end of 8 years;
(e) Loss on sale and corresponding tax benefit on the same has been considered for
analysis purpose;
(f) Working capital has been realised at the end of the project;
(g) R&D expenditure has been considered as sunk cost and not tax deductible.
On the basis of analysis have been conducted based on 4 parameters, the information n
the same has been detailed here-in-below:
(a) Discounted Payback period: Under the said tool of capital budgeting, the period
under which the initial cash outflow shall be realised is taken into consideration.
Further, the method pay importance to time value of money and discounting to
cash flows realised over the period is carried to ascertain the present value of the
cash flows.
In the case of P-REC, cash flows have been discounted at 18% and 24% to
understand the discounted payback period of the project. Accordingly, the
discounted payback period of the project stands at 5.25 years and 6.43 years
respectively which is greater than 5 years. Further, a brief snapshot of the
computation is provided here-in-below:

Sl
NO Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1
Operating Cash flow
before Tax -2890000 748060 748060 748060 748060 1336060 1336060 1336060 1336060 310000
2 Tax -224418 -224418 -224418 -224418 -400818 -400818 -400818 -400818 27600
3 Depreciation 306000 306000 306000 306000 306000 306000 306000 306000
4 Net Operating Cash flow -2890000 829642 829642 829642 829642 1241242 1241242 1241242 1241242 337600
5 Discounting Factor @18% 1
0.84745
8
0.71818
4
0.60863
1 0.515789
0.43710
9 0.370432 0.313925 0.266038
0.266038
164
6 Discounted Cash Flow -2890000
703086.
4 595836
504945.
7 427920.1
542558.
3 459795.2 389656.9 330217.7
89814.48
408
7 Net Present Value 1153831
8 Cumulative -2890000
-
218691
4
-
159107
8
-
108613
2 -658212 -115653 344141.8 733798.7 1064016
1153830.
921
9
Discounted Pay back
period 5.251532
10 Discounting Factor @24% 1
0.80645
2
0.65036
4
0.52448
7 0.422974
0.34110
8 0.275087 0.221844 0.178907
0.178906
664
11 Cumulative -2890000
-
222093
4
-
168136
4
-
124622
8 -895311 -471914 -130464 144898 366964.4
427363.3
353
12
Discounted Pay back
period 6.473792
The project is not feasible based on the requirement of the organisation to have discounted payback period less than 5 yeats.

(b) Net Present Value: The second tool used for analysing P –REC is Net Present Value which is used to understand the net excess cash
flow from the project by reducing outflow from inflow. This method recognise the importance of time value of money. Further, positive
NPV indicates that the project should be accepted. (The Pennsylvania State Universit, 2018) The formula that is used for computation is
detailed here-in-below:
Net Present Value = Present value of Inflows – Present Value of Out flows.
In the case of P-REC discounting has been carried at two rates i.e. 18% and 24% and accordingly the net present value of the project
stands at $11,53,831/- and $4,27,363/- respectively. The snapshot of the computation has been presented here-in-below:
Year Cash flows @18% Cash flows @24%
0 -2890000 -2890000
1 703086 669066
2 595836 539569
3 504946 435137
4 427920 350917
5 542558 423397
6 459795 341449
7 389657 275362
8 420032 282465
Total 1153831 427363
The project is feasible as it has positive net present value at both 18% and 24% discounting rate.
(c) Internal Rate of Return: This is a capital Budgeting tool undertaken to ascertain the rate of return from the project undertaken. The
method involves ascertaining the rate of discount at which the outflow of the project is equal to inflow. (InvestingAnswers, Inc, 2018)
In case of P-REC, the internal rate of return stands at 24%, a brief snapshot of the same has been detailed here-in-below:

Year Cash Flows
0 -2890000
1 829642
2 829642
3 829642
4 829642
5 1241242
6 1241242
7 1241242
8 1473242
IRR 28%
Since, project IRR is greater than 24% , project is feasible
(d) Profitability Index: The fourth tool used for analysis is profitability index which is computed on the basis of Present Value of inflow/
present value of outflow. (PEAVLER, 2018)
In the case of P-REC discounting has been carried at two rates i.e. 18% and 24% and accordingly the PI of the project stands at 1.399
and 1.148 respectively.
Since PI is greater than 1 at both discount rates i.e. 18% and 24% project shall be accepted
4.2 Quantitative Findings (T-REC)
Before analysing the findings made in Appendix attached to the document, it shall be important to understand assumptions which are
undertaken to understand the results better:
(a) Expenditure incurred towards training expense of human resource is a capital expenditure and the same is not depreciable. Further, no
tax benefit is available on same;
(b) The duration of project is 8 years;

(c) Renovation cost is depreciable and has been depreciated over 8 years
(d) The asset has been sold at the end of 8 years;
(e) Loss on sale and corresponding tax benefit on the same has been considered for analysis purpose;
(f) Working capital has been realised at the end of the project;
(g) No other cost has been considered for analysis;
(h) R&D expenditure has been considered as sunk cost and not tax deductible.
On the basis of analysis have been conducted based on 4 parameters, the information n the same has been detailed here-in-below:
(a) Discounted Payback Period:
In the case of T-REC, cash flows have been discounted at 18% and 24% to understand the discounted payback period of the project.
Accordingly, the discounted payback period of the project stands at 7.024 years and unrealisable respectively which is greater than 5
years. (Payback Period & Discounted Payback Period | Formula | Example, 2018)
The project is not feasible at 24% discounting rate.
(b) Net Present Value:

In the case of T-REC discounting has been carried at two rates i.e. 18% and 24% and accordingly the net present value of the project
stands at $2,20,794/- and -$2,34,538/- respectively.
The project is not feasible at 24% discounting rate.
(c) Internal Rate of return of the project is 22% for T-REC.
(d) Profitability Index
In the case of T-REC discounting has been carried at two rates i.e. 18% and 24% and accordingly the PI of the project stands at 1.076
and .9188 respectively.
The project is not feasible at 24% discounting rate.
4.3 Qualitative Findings
The qualitative factors that must be taken into consideration for analysing the project has been detailed here-in-below:
(a) The project proposed to be undertaken i.e P-REC is risky as the same might cause long term hazard to the company on account of
not being fully clinically tested. The impact of the same may adversely impact the cash flows stated above;
(b) There might be litigation and dispute on account of undertaking the project and the same shall hamper the future prospect of the
company;
(c) Since the Pharmaceutical Sector is prone to litigation and bans risk of such kind may in the long result in closure of the company;
(d) Further, one should consider the competitor action and the response of them and the above computation might not hold true if any
competitor launches similar product with better results;
(e) For T-REC, it is clinically safe and tested but the same is not feasible @24% discounting rate. However, it is less prone to litigation
and the above result shall hold good unless any drastic change take place in economy or on account of any major innovation;

Recommendation and Justifications
The company should carry out the production of T-Rec if the cost of funding is less than 18% and shall launch P-Rec post clinical testing
and understanding the side impact, even though the analysis carried out above is in favour of P-REC as the said situation might not hold
good in case of any litigation and dispute which shall impact the continuity of business.
Detail Comparison and Further Recommendation
The detail comparison has been presented here-in-below:
Sl No Particular P-REC T-REC
1 Discounted Pay Back period @18% 5.251532 7.024696201
2 Discounted Pay Back period @24% 6.473792 Never Paid off
3 Net Present Value @18% 1153831 220793.9465
4 Net Present Value @24% 427363.3 -234538.2196
5 Internal Rate of Return 28% 22%
6 Profitability Index @18% 1.40 1.08
7 Profitability Index @24% 1.15 0.92
On the basis of quantitative analysis, project P-REC shall be accepted but looking at qualitative aspect company should not go for P-REC as
it shall tarnish the image of the company in the long run.

Conclusion
On the basis of above analysis, T-REC shall be accepted further it shall be pertinent to note that P-REC is not clinically proven and same
shall be tested to be launch on a future date and the company should proceed with T-REC.
References:
InvestingAnswers, Inc. (2018). Internal Rate of Return (IRR). Retrieved October 1, 2018, from investinganswers.com: https://investinganswers.com/financial-
dictionary/investing/internal-rate-return-irr-2130
Payback Period & Discounted Payback Period | Formula | Example. (2018). Retrieved October 1, 2018, from www.wallstreetmojo.com:
https://www.wallstreetmojo.com/payback-period-discounted-payback-period/
PEAVLER, R. (2018, july 23). The Profitability Index. Retrieved October 1, 2018, from www.thebalancesmb.com: https://www.thebalancesmb.com/the-
profitability-index-392917
The Pennsylvania State Universit. (2018). Net Present Value, Benefit Cost Ratio, and Present Value Ratio for project assessment. Retrieved October 1, 2018,
from www.e-education.psu.edu: https://www.e-education.psu.edu/eme460/node/608
Appendix-1

Computation of Net Present Value for P-REC
Sl
NO Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1 Renovation Cost -185000
2 Human Resource Cost -40000
3 Quality Inspection Expense -60000 -60000 -60000 -60000 -60000 -60000 -60000 -60000
4 Plant and Machinery Cost
-
261500
0
5 Sale Price of Machinery 260000
6 Quantity to be sold 48000 48000 48000 48000 60000 60000 60000 60000
7 Rate per pcs 60 60 60 60 60 60 60 60
8 Sales Value 2880000
288000
0
288000
0
288000
0
360000
0
360000
0
360000
0
360000
0
9 Depreciation -306000 -306000 -306000 -306000 -306000 -306000 -306000 -306000
10 Variable operating cost -1296000
-
129600
0
-
129600
0
-
129600
0
-
144000
0
-
144000
0
-
144000
0
-
144000
0
11 Annual Fixed Cost -470000 -470000 -470000 -470000 -470000 -470000 -470000 -470000
12 Opportunity Rent Forgone -48000 -48000 -48000 -48000 -48000 -48000 -48000 -48000
13 Increase in Working Capital
-Inventory -54000 54000
-Debtors -23000 23000
-Creditors 27000 -27000
14
Operating Cash flow before
Tax
-
289000
0 748060 748060 748060 748060
133606
0
133606
0
133606
0
133606
0 310000
15 Tax -224418 -224418 -224418 -224418 -400818 -400818 -400818 -400818 27600
16 Depreciation 306000 306000 306000 306000 306000 306000 306000 306000
17 Net Operating Cash flow -
289000
829642 829642 829642 829642 124124
2
124124
2
124124
2
124124
2
337600

Computation of Net Present Value for P-REC
0
18 Discounting Factor @18% 1
0.84745762
7
0.71818
4
0.60863
1
0.51578
9
0.43710
9
0.37043
2
0.31392
5
0.26603
8 0.266038164
19 Discounted Cash Flow
-
289000
0
703086.440
7 595836
504945.
7
427920.
1
542558.
3
459795.
2
389656.
9
330217.
7 89814.48408
20 Net Present Value
115383
1
21 Cumulative
-
289000
0
-
2186913.55
9
-
159107
8
-
108613
2 -658212 -115653
344141.
8
733798.
7
106401
6 1153830.921
22 Discounted Pay back period
5.25153
2
23 Discounting Factor @24% 1
0.80645161
3
0.65036
4
0.52448
7
0.42297
4
0.34110
8
0.27508
7
0.22184
4
0.17890
7 0.178906664
24 Discounted Cash Flow
-
289000
0 669066.129
539569.
5
435136.
7
350916.
7
423397.
3
341449.
4
275362.
4
222066.
5 60398.88991
25 Net Present Value
427363.
3
26 Cumulative
-
289000
0
-
2220933.87
1
-
168136
4
-
124622
8 -895311 -471914 -130464 144898
366964.
4 427363.3353
27 Discounted Pay back period
6.47379
2
28 Internal Rate of Return 28%
29 Profitability Index @18% 1.399
30 Profitability Index @24% 1.148

Computation of Net Present Value for T-REC
Sl
NO Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1 Future Cash Flows 1235000
118600
0 964000 752000 695000 670000 634000 590000
2 Renovation Cost -185000
3 Human Resource Cost -40000
4
Plant and Machinery
Cost
-
2615000
5 Depreciation -306000 -306000 -306000 -306000 -306000 -306000 -306000 -306000
6
Increase in Working
Capital
-Inventory -54000 54000
-Debtors -23000 23000
-Creditors 27000 -27000
7 Salvage 260000
8 Cash flow before tax
-
2890000 929000 880000 658000 446000 389000 364000 328000 284000 310000
9 Tax -278700 -264000 -197400 -133800 -116700 -109200 -98400 -85200 27600
10 Cash flow after tax
-
2890000 650300 616000 460600 312200 272300 254800 229600 198800 337600
11 Depreciation 306000 306000 306000 306000 306000 306000 306000 306000
12 Net cash flow
-
2890000 956300 922000 766600 618200 578300 560800 535600 504800 337600
13
Discounting Factor
@18% 1
0.84745762
7
0.71818
4
0.60863
1
0.51578
9
0.43710
9
0.37043
2
0.31392
5
0.26603
8 0.266038164
14 Discounted Cash Flow
-
2890000
810423.728
8 662166
466576.
4
318860.
7
252780.
3 207738
168138.
2
134296.
1 89814.48408
15 Net Present Value
220793.
9
16 Cumulative -
2890000
-
2079576.27
-
141741
-950834 -631973 -379193 -171455 -3316.6 130979.
5
220793.9465

Computation of Net Present Value for T-REC
1 0
17
Discounted Pay back
period
7.02469
6
18
Discounting Factor
@24% 1
0.80645161
3
0.65036
4
0.52448
7
0.42297
4
0.34110
8
0.27508
7
0.22184
4
0.17890
7 0.178906664
19 Discounted Cash Flow
-
2890000
771209.677
4
599635.
8
402071.
9
261482.
3
197262.
6
154268.
7
118819.
8
90312.0
8 60398.88991
20 Net Present Value
-
234538.
2
21 Cumulative
-
2890000
-
2118790.32
3
-
151915
5
-
111708
3 -855600 -658338 -504069 -385249 -294937 -234538.2196
22
Discounted Pay back
period Never Paid off
23 Internal Rate of Return 22%
24
Profitability Index
@18%
1.07639
9
25
Profitability Index
@18%
0.91884
5

Appendix -2
Computation of Net Present Value for P-REC
Sl
NO Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1 Renovation Cost -185000
2
Human Resource
Cost -40000
3
Quality Inspection
Expense =-5000*12
=-
5000*12
=-
5000*12
=-
5000*12
=-
5000*12
=-
5000*12
=-
5000*12
=-
5000*12
4
Plant and Machinery
Cost
=-2550000-
65000
5
Sale Price of
Machinery 260000
6 Quantity to be sold 48000 48000 48000 48000
=G10/80
% =H10 =I10 =J10
7 Rate per pcs 60 60 60 60 60 60 60 60
8 Sales Value =D10*D11
=E10*E1
1
=F10*F1
1
=G10*G1
1
=H10*H1
1 =I10*I11
=J10*J1
1
=K10*K1
1
9 Depreciation
=(C8+C5-
L9)*10% =D13 =E13 =E13 =G13 =H13 =I13 =J13
10
Variable operating
cost =-D12*45%
=-
E12*45%
=-
F12*45%
=-
G12*45%
=-
H12*40%
=-
I12*40%
=-
J12*40%
=-
K12*40%
11 Annual Fixed Cost -470000 -470000 -470000 -470000 -470000 -470000 -470000 -470000
12
Opportunity Rent
Forgone =-4000*12
=-
4000*12
=-
4000*12
=-
4000*12
=-
4000*12
=-
4000*12
=-
4000*12
=-
4000*12
13 Increase in Working

Computation of Net Present Value for P-REC
Capital
-Inventory -54000 =-C18
-Debtors -23000 =-C19
-Creditors 27000 =-C20
14
Operating Cash flow
before Tax
=SUM(C5:C
20)
=SUM(D5:
D20)
=SUM(E5
:E20)
=SUM(F5
:F20)
=SUM(G5:
G20)
=SUM(H5:
H20)
=SUM(I5
:I20)
=SUM(J5
:J20)
=SUM(K5
:K20)
=SUM(L5:
L20)
15 Tax =-D21*30%
=-
E21*30%
=-
F21*30%
=-
G21*30%
=-
H21*30%
=-
I21*30%
=-
J21*30%
=-
K21*30% =-Q15
16 Depreciation =-D13 =-E13 =-F13 =-G13 =-H13 =-I13 =-J13 =-K13
17
Net Operating Cash
flow =C21
=D21+D22
+D23
=E21+E2
2+E23
=F21+F2
2+F23
=G21+G2
2+G23
=H21+H2
2+H23
=I21+I22
+I23
=J21+J2
2+J23
=K21+K2
2+K23
=L21+L22
+L23
18
Discounting Factor
@18% 1 =C25/1.18
=D25/1.1
8
=E25/1.1
8 =F25/1.18
=G25/1.1
8
=H25/1.
18
=I25/1.1
8 =J25/1.18 =K25
19
Discounted Cash
Flow =C24*C25 =D24*D25
=E24*E2
5
=F24*F2
5
=G24*G2
5
=H24*H2
5 =I24*I25
=J24*J2
5
=K24*K2
5 =L24*L25
20 Net Present Value
=SUM(C26:
L26)
21 Cumulative =C26 =C26+D26
=D28+E2
6
=E28+F2
6 =F28+G26
=G28+H2
6
=H28+I2
6 =I28+J26 =J28+K26 =K28+L26
22
Discounted Pay back
period
=5+(-
H28/I26)
=A2
9+1
Discounting Factor
@24% 1 =C30/1.24
=D30/1.2
4
=E30/1.2
4 =F30/1.24
=G30/1.2
4
=H30/1.
24
=I30/1.2
4 =J30/1.24 =K30
=A3
0+1
Discounted Cash
Flow =C30*C24 =D30*D24
=E30*E2
4
=F30*F2
4
=G30*G2
4
=H30*H2
4 =I30*I24
=J30*J2
4
=K30*K2
4 =L30*L24
=A3
1+1 Net Present Value
=SUM(C31:
L31)
=A3
2+1 Cumulative =C31 =C33+D31
=D33+E3
1
=E33+F3
1 =F33+G31
=G33+H3
1
=H33+I3
1 =I33+J31 =J33+K31 =K33+L31
27 Discounted Pay back =6+(-

Computation of Net Present Value for P-REC
period I33/J31)
28
Internal Rate of
Return
=IRR(N29:N
39)
29
Profitability Index
@18%
=1+L28/-
C28
30
Profitability Index
@24%
=1+L33/-
C33
Computation of Net Present Value for T-REC
Sl
NO Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Terminal
Value
1 Future Cash Flows 1235000 1186000 964000 752000 695000 670000 634000 590000
2 =B5 =C5
3 =B6 =C6
4 =B8 =C8
5 Depreciation =D13 =E13 =F13 =G13 =H13 =I13 =J13 =K13
6
Increase in
Working Capital
-Inventory =C18 =L18
-Debtors =C19 =L19
-Creditors =C20 =L20
7 Salvage =L9
8
Cash flow before
tax
=SUM(C4
3:C51)
=SUM(D4
3:D51)
=SUM(E4
3:E51)
=SUM(F4
3:F51)
=SUM(G4
3:G51)
=SUM(H4
3:H51)
=SUM(I4
3:I51)
=SUM(J4
3:J51)
=SUM(K4
3:K51)
=SUM(L4
3:L52)
9 Tax
=-
D53*30%
=-
E53*30%
=-
F53*30%
=-
G53*30%
=-
H53*30%
=-
I53*30%
=-
J53*30%
=-
K53*30% =-Q15
10
Cash flow after
tax =C53+C54 =D53+D54 =E53+E54 =F53+F54 =G53+G54 =H53+H54 =I53+I54 =J53+J54 =K53+K54 =L53+L54

Computation of Net Present Value for T-REC
11 Depreciation =-D47 =-E47 =-F47 =-G47 =-H47 =-I47 =-J47 =-K47
12 Net cash flow =C55+C56 =D55+D56 =E55+E56 =F55+F56 =G55+G56 =H55+H56 =I55+I56 =J55+J56 =K55+K56 =L55+L56
13
Discounting
Factor @18% =C25 =D25 =E25 =F25 =G25 =H25 =I25 =J25 =K25 =L25
=A5
8+1
Discounted Cash
Flow =C57*C58 =D57*D58 =E57*E58 =F57*F58 =G57*G58 =H57*H58 =I57*I58 =J57*J58 =K57*K58 =L57*L58
=A5
9+1 Net Present Value
=SUM(C5
9:L59)
=A6
0+1 Cumulative =C59 =C59+D59 =D61+E59 =E61+F59 =F61+G59 =G61+H59
=H61+I5
9 =I61+J59 =J61+K59 =K61+L59
=A6
1+1
Discounted Pay
back period
=7+(-
J61/K59)
=A6
2+1
Discounting
Factor @24% 1 =C63/1.24
=D63/1.2
4 =E63/1.24 =F63/1.24 =G63/1.24
=H63/1.2
4 =I63/1.24 =J63/1.24 =K63
=A6
3+1
Discounted Cash
Flow =C63*C57 =D63*D57 =E63*E57 =F63*F57 =G63*G57 =H63*H57 =I63*I57 =J63*J57 =K63*K57 =L63*L57
=A6
4+1 Net Present Value
=SUM(C6
4:L64)
=A6
5+1 Cumulative =C64 =C66+D64 =D66+E64 =E66+F64 =F66+G64 =G66+H64
=H66+I6
4 =I66+J64 =J66+K64 =K66+L64
=A6
6+1
Discounted Pay
back period Never Paid off
=A6
7+1
Internal Rate of
Return
=IRR(N62:
N71)
=A6
8+1
Profitability Index
@18%
=1+(L61/-
C61)
25
Profitability Index
@18%
=1+L66/-
C66