Strategic Financial Management: Analysis of NPV, Uncertainties, and Risk Reduction

Strategic financial
management

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Question 1: Critical evaluation of use of net present value method as the key analytical tool in
capital investment appraisal.........................................................................................................1
Question 2: Discussion of the principle uncertainties associated with the project......................3
Question 3: Discussion of possible actions that could be taken by the organisation to reduce
risk that the project fails to increase shareholder value...............................................................4
Question 4: Critique of the main issues of the organisation using 100% debt funding to finance
the project....................................................................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Strategic financial management can be defined as the process of management of all the business
activities that are related to fun generation for business. For all the companies it is very important
to pay attention towards it as it can help to find appropriate solutions for the issues that are faced
by the entity. Capital budgeting is one of the key parts of it in which companies try to generate
funds for operations by using different investment appraisal techniques (Adusumilli, Davis and
Fromme, 2016). These are net present value, pay back period, accounting and internal rate of
return. Present report is based upon analysis of NPV of Ridley Co. This assignment covers
various topics such as uses of NPV, principles uncertainties of the project, actions to be taken to
reduce the level of risk etc. Additionally, the main issues which may take place by using 100%
debt funding to finance the project are also discussed in this report.
MAIN BODY
Question 1: Critical evaluation of use of net present value method as the key analytical tool in
capital investment appraisal
Net present value is one of the investment appraisal techniques which are used to analyse
that the project will be able to provide appropriate returns in future. It is the difference between
initial outlay of an investment and the discounted cash inflow. In order to determine that the
future project which will be selected by the organisation to make investment will be able to result
positively for the company or not this method is used. With the help of it, decisions for future are
taken as it facilitates to formulate effective strategies for upcoming period that can help to grow
the business. From the calculations of net present value of Ridley Co., it has been analysed that
the NPV for the four years project which is being reviewed by the organisation to invest 38
million is negative (Basher and Raboy, 2018). It has been recommended to the company that it
should not invest in the project as it will not provide good returns. By using it, it has been
determined that it is very useful for the businesses as it is the analytical tool which is used in
investment appraisal. There are various uses of it which could be understood with the help of
following discussion:
 Formulate effective future decision for investment: Main use of net present value is to
determine that the project which could be selected by the organisation to make
investment in future will be beneficial or not. It helps to analyse the present value after
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