Financial Feasibility Analysis for ALLCURE Inc: P-REC and T-REC

Report on Financial Feasibility for ALLCURE Inc.
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Executive Summary
The report presented here provides an analysis of financial feasibility for ALLCURE Inc.
ALLCURE Inc has a project under consideration. It is considering setting up a manufacturing
facility for manufacturing P-REC drug. The financial results show positive NPV of $932,255.18
and high IRR of 26.71%. Further, the payback period (3.68 years) of the project is also within
the risk appetite of the management. Thus, the project of P-REC manufacture becomes
acceptable for the company. Further, the company can also go for alternative product called T-
REC. This product also has positive outcomes in terms of NPV ($952,662.18), IRR (29.86%),
and payback period (4.06 years). However, when comparing the payback period of two products
at WACC of 24%, it is found that P-REC is better than T-REC.
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Contents
Introduction.................................................................................................................................................4
Findings.......................................................................................................................................................4
Quantitative.............................................................................................................................................4
Qualitative...............................................................................................................................................5
Recommendations and Justifications...........................................................................................................6
Detailed Comparison of P-REC and T-REC and Further Recommendations..............................................6
Conclusion...................................................................................................................................................8
References...................................................................................................................................................9
Appendix...................................................................................................................................................10
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Introduction
Assessing the financial feasibility is essential to ensure that the project under
consideration would be profitable for the company. With this aim, the firms conduct financial
feasibility of a project which involves evaluating project’s NPV, IRR, and payback period
(Rossi, 2015). The NPV evaluation among all is considered to be the most significant and thus,
the decision to accept or reject the project revolves around the result of NPV. As a thumb rule, if
the NPV is positive, the project is considered for implementation else it is rejected and the
proposal is turned down. In the current case, ALLCURE Inc is considering implementing a
project which involves developing a drug prototype called P-REC. Further, the company also
wishes to check the financial feasibility of an alternative of the prototype called T-REC. In this
connection, this report has been prepared with a view to assess the financial feasibility of P-REC
and T-REC by applying the tools such as NPV, IRR, payback period, and cross rate analysis.
Findings
Quantitative
Quantitative analysis is conducted applying mathematical tools and techniques. The
capital budgeting tools are applied to conduct quantitative analysis which involves application of
NPV, IRR, and payback period (Vecchi and Casalini, 2018). ALLCURE Inc is considering
setting up a production line for manufacturing of P-REC drug. This project involves huge capital
investments so it becomes essential for the company to evaluate that whether the project would
provide adequate returns or not.
Net Present Value of the Project
The net present value is computed by deducting the present value of all future cash
inflows expected from the project over its life time from the initial investment. The present
values of the cash inflows of the project are computed by discounting the cash inflows at an
appropriate discount rate. The appropriate discount rate is taken at weighted average cost of
capital of the firm. However, the estimation of weighted average cost of capital quite tricky and
it involves consideration of several factors (Goyat and Nain, 2016).
The net present value of P-REC is worked out to be $932,255.45 which indicates that the
project is financially viable. This net present value has been worked out by deducting present
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