Projections of Sales and Operations: Evaluation of Project Costs, Cash Flow Determination, and NPV Analysis

Projections of sales
and operations

Contents
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
1. Discuss the relevant and irrelevant costs for evaluation of the project..............................3
2. Determined the Initiation Investment of the project. Also broadly describe the method
used for determining those cash flows...................................................................................3
3. Compute the payback period by ignoring the time value of money. Also comment on the
results.....................................................................................................................................4
4. Estimate the Net Present Value ((NPV) And IRR of the project.......................................5
5. Using sensitivity analysis, recalculate NPV in above question using the scenario of a
decrease in project sales by 10% annually. Briefly comment on the results.........................7
6. Using sensitivity analysis, recalculate NPV in above question if the project is funded
entirely by equity (retained earnings and new share issuance). Briefly comment on the
results.....................................................................................................................................7
7. Produce an estimate of change in cost of equity and the estimated cash flows of the
project given the current situation of COVID-19 in Australia. How would the NPV of the
project change? Give recommendation..................................................................................8
8. Give recommendations for evaluating the project.............................................................8
REFERENCES...........................................................................................................................9

INTRODUCTION
Projected sales and the costs estimation plays an important role when making an
investment for the company. For this, case study of Tas Farm Pty Ltd is given which deals in
aquaculture industry for dealing with the aquatic industry (Atrill, McLaney and Pointon,
2019). In the following report, various relevant costs are identified from the case study. Then
further, the payback and NPV analysis is done by making the cash flows for the 5 years.
Moreover, the sensitivity analysis is conducted through NPV by determining the change due
to decrease in sales and the effect of Covid – 19 pandemics.
MAIN BODY
1. Discuss the relevant and irrelevant costs for evaluation of the project.
The relevant cost for the valuation of project is below:
 Material Cost
 Lan and Equipment Cost
 Labour Costs
 Maintenance Cost
 Operating Fixed Cost
 Increment in Administrative Cost
 Depreciation
2. Determined the Initiation Investment of the project. Also broadly describe the method used
for determining those cash flows.
Cost of 8 Equipment which cost $ 100000 each
So, Total cost of equipment = 100000 * 8 = 800000
Land = $ 1000000
Renovate and redevelopment = $ 200000
Total Initial Investment = $ 2000000
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Production Quantity (in tons) 120 140 170 185 185
Price per ton 9100 9050 9100 9145 9195
Total Revenue 1092000 1267000 1547000 1691825 1701075
Less: Material Cost 2000 2200 2420 2662 2928.2
240000 308000 411400 492470 541717