ACC00152 Business Finance Report: Space Sky Flight Ltd Analysis

This report analyzes three investment options for Space Sky Flight Ltd (SSF), focusing on capital budgeting and NPV analysis. The company, having invested $6.5 million in R&D for a satellite-fixing drone, must choose between manufacturing in-house (Option A), licensing another company (Option B), or selling patent rights (Option C). The report evaluates each option's financial viability, recommending Option B due to its highest NPV. It also emphasizes the need for SSF to consider factors beyond NPV, such as financial capabilities, market growth, competition, and risk assessment. The conclusion reinforces the recommendation of Option B while urging a comprehensive approach to decision-making, considering both financial and market dynamics to ensure long-term success. References include Almazan, Chen, and Titman (2017), Geng et al. (2018), Ram and Ronggui (2018), and Tsiga, Emes and Smith (2016).

Running Head: BUSINESS FINANCE 1
Business Finance
(Student Name)

BUSINESS FINANCE 2
Table of Contents
Introduction......................................................................................................................................3
Recommendations based on Base Case analyses............................................................................3
Further Analysis...............................................................................................................................3
Conclusion.......................................................................................................................................4
References........................................................................................................................................5

BUSINESS FINANCE 3
Introduction
In the recent years, capital budgeting is becoming increasingly more essential as a kind of
managerial tool. It helps the company to take reliable decision while investing in any new project
(Almazan, Chen, and Titman, 2017). One of the companies Space Sky Flight Ltd has disbursed
approximately $6.5 million in the department of research and development over the last 12
months for updating a drone that is enough proficient to fix the satellites that will help them to
compete in the industry of space. The company has three options either they can manufacture
such product buy its own or licensing another company to manufacture and enjoy with the
royalty amount. The company has also an option to sell its patent as well. In the following part
there will be detailed analyses of the options that is provided to the company according to which
they can make the decision efficiently
Base Case Analysis Recommendations
On the basis of base case analysis it has been found that option A showcase that the company
should start engineering the product and sell unswervingly to the marketplace. Option second
represents that the company should start licensing another organization to manufacture as well as
sell the creation in yield for a royalty. According to Option C, the Space Sky Flight Ltd should
sell its patent privileges entire to the other corporation to play safe game and protect its interest
from any risk. Therefore, in order to analysis the base case, it understood that the corporation
must adopt Option B according to which the company should start licensing another corporation
to produce as well as sell the produce due to the main reason such option has earned highest
NPV which is 39.1. In order to adopting such method, the company can able to control over its
cost and will able to earn good return from the business which is expected while starting the

BUSINESS FINANCE 4
business. It will help in decreasing the burden of the company as well as the company can also
able to focus over its new investment in an effective manner. The loss can be occur while
adopting option A due to the main reason it has negative NPV of 124.7 million. The NPV of
option C is 36.5 which showcase that the company will be in profit if it will adopt option C as
well. However, the company can earn maximum profit through adopting option B as it has
highest NPV. It showcase that the company can able to grow in the competitive market through
adopting Option B rather than option A and option C.
Further Analysis
The company should not only depend on the NPV for making its decision. It is required for the
company to focus over other factors as well which play a vital role in the growth and making
decision of the company. Therefore, for making final decision, Space Sky Flight Ltd is required
to focus over other things as well which are explained in the below points:
 Space Sky Flight Ltd is required to assess its financial situation while selecting such
option. It is required for the company to weigh its financial capabilities before taking any
kind of decision as the sales can lead to the massive financial losses on a project that
would be highly profitable were it taken to successful completion (Tsiga, Emes and
Smith, 2016).
 Space Sky Flight Ltd should also analyse the future growth and demand of such project.
Some of the projects might give loss to the company but can give huge revenue in future
if the demand of such product is high. Therefore, it is required for the company to analyse
the actual growth opportunity of such business in the near future (Geng et al., 2018)

BUSINESS FINANCE 5
 The company should also analyse the level of competition as well before selecting an
option. It is required for the company to analyse the whole market before making any
decision. If the level of the competition is high then the company can select option B or C
however, in the case the level of competition is low, then the company can adopt option
A as well.
 The company is also required to analyse the level of risk that is involved in the project
before taking a final decision among the three choices. It is required to do so due to the
main reason if the level of risk is low then the company can take a risk of manufacturing
the product. However, if the level of risk involved is high then the company should select
either option B or C. It will help the company to take reliable decision in an effective and
efficient manner (Ram and Ronggui, 2018).
Conclusion
From the above analysis it can be concluded that Space Sky Flight Ltd should adopt option B to
earn maximum profit due to the main reason the NPV of option A is negative that showcase it is
not preferable and option C showcase low NPV as comparison to option B. However, the
company should also consider other matter as well while making decision. It is required for the
company to analyse its one financial capability and analyse the risk involve in the market that
help them to grow in the market in more effective and efficient manner.

BUSINESS FINANCE 6
References
Almazan, A., Chen, Z. and Titman, S. (2017) Firm Investment and Stakeholder Choices: A Top‐
Down Theory of Capital Budgeting. The Journal of Finance, 72(5), pp.2179-2228.
Geng, S., Chuah, K.B., Law, K.M., Cheung, C.K., Chau, Y.C. and Rui, C. (2018) Knowledge
contribution as a factor in project selection. Project management journal, 49(1), pp.25-41.
Ram, J. and Ronggui, D. (2018) Research and development projects: An empirical investigation
of project managers’ traits. International Journal of Managing Projects in Business, 11(4),
pp.913-934.
Tsiga, Z.D., Emes, M. and Smith, A. (2016) Critical success factors for projects in the space
sector. Journal of Modern Project Management, 3(3), pp.56-63.