Finance Report: Capital Project Analysis, Valuation, and Depreciation

This finance report provides an overview of key financial concepts and their applications. It begins by discussing the time value of money, emphasizing the importance of present value calculations. The report then delves into capital project analysis, highlighting various methods such as Net Present Value (NPV) and Internal Rate of Return (IRR). It examines the role of sensitivity analysis in assessing the impact of changing variables on project outcomes. Furthermore, the report addresses the treatment of depreciation in financial statements and its impact on cash flows. Finally, it explores the significance of operating performance metrics in evaluating a company's financial health, contrasting them with net income measures. The report includes references to relevant academic literature.

Running head: FINANCE
Finance
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1FINANCE
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................2
Question 3........................................................................................................................................2
Question 4........................................................................................................................................2
Question 5........................................................................................................................................3
Reference.........................................................................................................................................4

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Question 1
Time value of money shows the present value of money in terms of the future amount to
be received. The application of TVM can be done by applying the required rate of return for
discounting the future value of money. The dollar is worth more today than the future because of
the interest rate involved Chan, K. and Rate, E.A.I., 2018..
Question 2
There are multiple measures of capital performance for evaluating capital project. The
various measure should be used for assessing better financial viability of project. Net Present
Value, Internal Rate of Return and Payback Period are some of the common tools.
Question 3
Sensitivity Analysis shows the change in output due to change in a key factor analysed
for the company. Various set of assumption that are used for the capital project will give a varied
answer and scenarios for the company. The final output or the profitability from the project will
change if the key factors of a project changes (Borgonovo, Emanuele and Elmar Plischke).
Question 4
Depreciation is added back to the cash flows that are received as the classification of the
depreciation expenses is a non-cash expenses, which needs to be added back to the total cash
inflows. Yes, depreciation is an expense in the Income Statement, which is reported as a non-
cash expense (Farrell and Brendon).

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Question 5
Operating Performance of the company is assessed for evaluating the financial
performance of the company as the same shows the return generated by the company on a gross
basis by direct operating activities of the company. However, net income also considers various
cash and non-cash expense that can be attributed for the assessment of financial performance of
the company.

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Reference
Borgonovo, Emanuele, and Elmar Plischke. "Sensitivity analysis: a review of recent advances."
European Journal of Operational Research 248, no. 3 (2016): 869-887.
Farrell, Brendon. "Depreciation and the Time Value of Money." arXiv preprint
arXiv:1605.00080 (2016).