AFIN 2053 Assignment: Identifying Errors in Jazzy Juices NPV Analysis

This assignment focuses on identifying and explaining errors in a student's Net Present Value (NPV) calculation for a business called Jazzy Juices. The analysis highlights several key mistakes, including the failure to account for salvage value of the old machine, depreciation, and the salvage value of the new machine at the end of the project's lifespan. The student's calculation also incorrectly treated cost savings, and did not properly incorporate the discounting rate in the budgets. The assignment emphasizes the importance of accurate NPV computations for making sound investment decisions. The document includes a reflection on the learning process and provides a bibliography of relevant academic sources. The analysis underscores that proper financial management requires careful consideration of all relevant financial aspects and an understanding of how to correctly incorporate all factors into the NPV calculation to ensure accurate results and informed decision-making. The assignment is designed to help students to develop their financial analysis skills, and improve their understanding of key financial concepts.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Author’s Note

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Analysis of the Problem
The analysis for the NPV which is computed for the business of Jazzy Juices
n identify the main errors which have been made in the calculations which can affect
the NPV which is computed for the business. The old machine has been replaced
and no salvage value or loss on sales for the machinery has been recorded in the
table. This issue would misstate the net income which is generated by the business.
The business has also not considered the depreciation which needs to be added
back so that non-cash adjustments can be made in respect to the same. The wrong
impact of such an item would influence the cumulative cash flows for the business
and thereby also impact the NPV and Payback period for the business.
The business has not recorded any salvage value for the old machine which
and the same needs to be added to compute the NPV for the business. The salvage
value for the new machine is also not added at the end of four year period. The
discounting rate for the project is estimated to be 8% and the same is not properly
shown in the budgets. The business has also not computed the present value for the
salvage of the new machine and therefore the same can impact the net present
value which is computed. The costs savings due to switch in machinery should be
treated as income for the business but the same Is shown to be for the first two
years and last two years it is shown to be zero. This might be wrong as the cost
savings due to application of new machinery would impact all the aspects of the net
income which would directly affect the net present value for the business.
Therefore, the above analysis shows that all aspects which are used in the
NPV computations needs to be properly displayed in the computations and the
business also needs to add back non-cash items to the net profit for the business in

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order to estimate the net cash flows for the business. The computation of NPV for a
business helps in taking major investment decisions and therefore proper steps
needs to be taken in order to ensure that a level of accuracy is maintained. The
analysis of the NPV computation also shows that salvage value for thee machinery
has been ignored. This shows that the accuracy of the NPV, IRR and payback period
has been affected which would be impacting the decision making process for the
business. The depreciation also needs to be computed on the basis of estimated
useful life of the machinery and the salvage value for the machine at the end of year
4. Therefore, it can be said that proper changes needs to be made in the
computations so that proper results can be computed and investment decisions can
be taken accordingly by the management of the company.

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Bibliography
Bas, E., 2013. A robust approach to the decision rules of NPV and IRR for simple
projects. Applied Mathematics and Computation, 219(11), pp.5901-5908.
Robison, L.J., Barry, P.J. and Myers, R.J., 2015. Consistent IRR and NPV
rankings. Agricultural Finance Review.