Financial Analysis of a New Project Proposal: Evaluating Feasibility through NPV, Payback Period, and More

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Table of Contents
Introduction................................................................................................................................2
Project evaluation method..........................................................................................................2
Risk assessment based on base case and sensitivities................................................................4
Conclusion and recommendation...............................................................................................5
References..................................................................................................................................6

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Introduction
Pinto Ltd recently subjected to competition considerable from the overseas
manufacturers those are offering their products at much lower cost compared to Pinto Ltd. To
overcome this situation the company is considering a new project that will move it to the new
product market that is riskier as compared to the present operation. The main objective of the
report is to undertake the financial analysis of proposed project through various approaches
like NPV, payback period, IRR, profitability index and discounted payback period (Almazan,
Chen and Titman 2017).
Project evaluation method
Various methods used for evaluating the feasibility of the project are as follows –
Net present value – it is the value of all the future cash flows whether negative or positive
over the useful life of the asset discounted to the present value. It is a form of the intrinsic
valuation and extensively used in accounting and finance to determine the project value,
capital project, investment security, cost reduction program or anything else that requires
cash flow analysis. Using NPV only, the project is considered as acceptable if the NPV of the
project is positive. On the contrary the project is rejected if the NPV of the project is
negative. Looking into the project proposed project evaluation it can be stated that the NPV is
computed as $45,98,247. As the NPV of the project is positive it is acceptable (Leyman and
Vanhoucke 2017).
Payback period – under capital budgeting approach payback period is considered as the
selection criteria or the deciding factor that helps the business in selecting from the potential
capital projects. Simple payback period determines the times required by the project to pay
back initial outlay of the project from the cash flows produced by the project. On the other