Assignment on Finance PDF

Running Head: Finance
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Project Report: Finance

Finance
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Contents
Introduction.......................................................................................................................3
NPV calculations..............................................................................................................3
Assumptions.....................................................................................................................4
Other capital budgeting methods......................................................................................5
Conclusion........................................................................................................................7
References.........................................................................................................................8

Finance
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Introduction:
Capital budgeting is a process that is used by the financial am managers and the
financial analyst to evaluate and determine the potential large expenses or investment
opportunities of the business. the expenditure and the investment include long term project of
the business such as building, new plant, long term venture etc. the capital budgeting method
helps the business to evaluate all the factor and make decisions about accept or reject the
proposal of the business on the basis of net profit, total time, return % etc (Schwartz, 2017).
In this report, the project proposal of Watley has been studied. Watley is planning to
buy an automating cutting machine in order to reduce the additional expenses and improve
the profitability position of the business. The net present value and other methods of capital
budgeting has been applied to identify that whether the proposal should be accepted by the
company or not. Along with that, the assumptions related to capital budgeting have also been
studied.
NPV calculations:
NPV is one of the capital budgeting evaluation methods which evaluates the
difference between the present value of cash outflows and inflows of a proposal or project
(Lord, 2017). It evaluates the profitability position of a projected investment proposal or
project. If the NPV of a project is positive then the project is a good option for the purpose of
investment.
In case of Wately, the project of the business has been evaluated and the below results
have been found:
Year 0 1 2 3 4
Amount £000 £000 £000 £000 £000
Cash inflows 22 22 22 22
Cash outflows -60 -2 -2 -2 -2
Net cash flows -60 20 20 20 20
10% discount rate 1.00 0.91 0.83 0.75 0.68
Present value -60 18.18 16.53 15.03 13.66
Net present value 3.40
(Weetman, 2013)
The above table of NPV represents that the total net cash inflow of the company is
quite higher than the total cash outflow of the business which represents that if the automatic