Electrics Inc.: Financial Resource Management and Project Analysis

This report provides a comprehensive analysis of Electrics Inc.'s financial resource management, focusing on a proposed electric motor conversion kit project. It begins with an executive summary and then delves into the energy cost situation, cost of equity calculation, and the discount factor used for evaluating the project. The report forecasts cash flow for the next eight years, outlining assumptions, and identifies appropriate capital budgeting techniques. It evaluates the project's sensitivity through NPV analysis, assesses overall project riskiness, and recommends specific controllers. The study concludes with a recommendation on whether Electrics Inc. should accept or reject the project, supported by the financial data and analysis. References and a bibliography are included to support the findings. The report highlights key financial metrics and considerations for effective resource allocation and project evaluation.

Running head: MANAGING FINANCIAL RESOURCES
Managing Financial Resources
Name of the Student
Name of the University
Author’s Note

1MANAGING FINANCIAL RESOURCES
Executive Summary
This current report has focused on the managing of the financial resources of the company in
which the cost of equity of the project has been determined along with considering the
discount factor for the project. Electrics Inc. has forecasted the cash flow for the next eight
upcoming years along with capital budgeting techniques, which consist of the sensitivity of
the project based on the scenario. The study also includes the recommendation in which the
project should be accepted or not.

2MANAGING FINANCIAL RESOURCES
Table of Contents
Introduction................................................................................................................................3
Energy cost situation..................................................................................................................3
Cost of equity of project.............................................................................................................3
Discount factor used for evaluating electric motor project........................................................4
Forecasting cash flow for next eight years along with assumptions..........................................4
Appropriate capital budgeting technique for evaluating the project..........................................4
Evaluating the sensitivity of the project’s NPV.........................................................................5
Overall riskiness of the project..................................................................................................6
Controllers that are required to be used.....................................................................................6
Recommendation for accepting or rejecting the project along with basis.................................6
Conclusion..................................................................................................................................7
References and Bibliography.....................................................................................................8

3MANAGING FINANCIAL RESOURCES
Introduction
Managing of financial resources is vital for an organization as it includes the
management of the resources that are available with the selected organization. In this study,
Electrics Inc. has been taken into consideration, which is a manufacturing company that
manufactures heavy duty generators at a reasonable cost. In this study, the energy cost
situation and cost of equity along with cash flow for the upcoming years and capital
budgeting techniques has been discussed.
Energy cost situation
The energy cost situation of Electrics Inc. considers the factors that highlights the
effective cost, which has been incurred in the allocation of the project. Cost situation of the
project is required to be provide certain importance as it includes the overall cost that would
be incurred during the operation of the project (Chava, 2014). It can be clearly seen that the
project has different types of cost such as cost of capital and warranty cost that would be
incurred for the project along with other expenses. The project by Electrics Inc. includes two
different types of items that are being planned to launched in the targeted market. There are
around three conditions on which the net present value as well as internal rate of return has
been determined. Weak, average and strong are the situations on which the project is based as
per the total cost of expenses.
Cost of equity of project
The cost of equity of the project includes the yield to maturity value of 3 % along
with the current 10 years treasury notes. The market value that is being forecasted in the S &
P market premium is around 6.5 %. The company has mentioned that it has the beta value of
around 1.35. Based on this information, weighted average cost of capital has been calculated

4MANAGING FINANCIAL RESOURCES
which includes the rate of tax along with debt to equity. Weighted average cost of capital of
the project is calculated as 9.15 %.
Discount factor used for evaluating electric motor project
The discount factor that has been used for evaluating the electric motor project
includes the present value factors that helps in estimating the cost for future years. Electric
motor project has been considered the discounting factors which helps in estimating the PMT
as well as cost of capital of the electric motor (Baker and Wurgler, 2015). It can be clearly
seen that the PMT of the electric motor is 75 and cost of capital is around 9.15 % and the
determined present value is $ 290.59. the present value discounting factors points out the
overall discounting of the total value that is required to be incurred during the performances
of the project.
Forecasting cash flow for next eight years along with assumptions
Cash flow has been forecasted for both of the products that has been included by the
company along with considering the operating summary of both of the items. Price per
complete motor is around $ 9100, which has been increasing at the rate of 3 % as inflation
rate and at the end of 8th year the cost of the motor would be around $ 11192. There are
different prices for different types of products along with situation of the products in different
conditions such as weak, average and strong (Leung et al., 2014). The assumptions that has
been made includes the beta value of the company, which is estimated around 1.32 along
with other risk factors.
Appropriate capital budgeting technique for evaluating the project
The project consist of capital budgeting techniques, which helps in evaluating the cost
and other expenses that would be incurred during the completion of the project. Present value

5MANAGING FINANCIAL RESOURCES
has been calculated for the electric motor has been valued at $ 290.59 along with CTX 13
controller for $ 348.71 and MT 78 controller for $ 387.46 during the project period.
Evaluating the sensitivity of the project’s NPV
The sensitivity of the project has been determined as per the valuation of the
controllers along with other percentage of increase as well as decreasing. It mainly highlights
the increasing trend as well as decreasing trend by 3 %. The sensitivity analysis of the sales
price is calculated along with cost of the controller is provided below.
Figure 1: Sensitivity analysis
(Source: Created by author)

6MANAGING FINANCIAL RESOURCES
The above figure states the sensitivity analysis of both of the controllers and it can be
clearly seen that the product has gone up to 3 % in positive ways as well as 3 % in negative
ways.
Overall riskiness of the project
The riskiness of the project is required to be considered with the additional risk
factors that are not equals to 100 % and it has been estimated in overall five different types of
risk.
Figure 2: Risk factors
(Source: Created by author)
The above figure points out the level of risks that has been determined and the
quantified risk factors is equals to 3.96 for that period.
Controllers that are required to be used
Going ahead with the project requires the controller CTX – 13 along with MT – 78 as
both of them includes the cost that would return maximum and the sales amount is more than
other costs. Both of the controller is required to be used in the kit of conversion that decides
to go ahead of the project.

7MANAGING FINANCIAL RESOURCES
Recommendation for accepting or rejecting the project along with basis
Electrics Inc. is required to accept the project as the net present value as well as
internal rate of return is in better position. It can also be recommended that the project must
continue with the allocated amount that has already been allocated for the project.
Conclusion
From the above study, it can be concluded that Electrics Inc. has included with two
project items that has been associated with different level of demand. The flow of cash for the
next eight years has been highlighted that help in evaluating the discount factor of the project.
The Smith brothers that provides logging industries in the southern part of California operate
the company. The sensitivity analysis of the project includes the riskiness along with
considering the proposal for accepting the project by the company.

8MANAGING FINANCIAL RESOURCES
References and Bibliography
Baker, M., & Wurgler, J. (2015). Do strict capital requirements raise the cost of capital? Bank
regulation, capital structure, and the low-risk anomaly. American Economic
Review, 105(5), 315-20.
Cagliano, A. C., Grimaldi, S., & Rafele, C. (2015). Choosing project risk management
techniques. A theoretical framework. Journal of Risk Research, 18(2), 232-248.
Chava, S. (2014). Environmental externalities and cost of capital. Management
Science, 60(9), 2223-2247.
Guerra, M. L., Magni, C. A., & Stefanini, L. (2014). Interval and fuzzy average internal rate
of return for investment appraisal. Fuzzy Sets and Systems, 257, 217-241.
Kiendl, J., Schmidt, R., Wüchner, R., & Bletzinger, K. U. (2014). Isogeometric shape
optimization of shells using semi-analytical sensitivity analysis and sensitivity
weighting. Computer Methods in Applied Mechanics and Engineering, 274, 148-167.
Leung, B., Springborn, M. R., Turner, J. A., & Brockerhoff, E. G. (2014). Pathway‐level risk
analysis: the net present value of an invasive species policy in the US. Frontiers in
Ecology and the Environment, 12(5), 273-279.
Marcelino-Sádaba, S., Pérez-Ezcurdia, A., Lazcano, A. M. E., & Villanueva, P. (2014).
Project risk management methodology for small firms. International journal of
project management, 32(2), 327-340.
Žižlavský, O. (2014). Net present value approach: method for economic assessment of
innovation projects. Procedia-Social and Behavioral Sciences, 156, 506-512.