Financial Analysis: Corporate Project Evaluation and Recommendations

This report presents a comprehensive financial analysis of a new corporate project, evaluating its potential profitability and viability. The analysis includes detailed calculations of Net Present Value (NPV) and Internal Rate of Return (IRR) under different scenarios, specifically with and without contract manufacturing sales. The report examines various financial metrics and provides a thorough assessment of the project's potential for generating returns on investment. It delves into the project's cash flows, considering initial investments, sales forecasts, raw material costs, operating income, and other deductions such as wage rates, factory overheads, and depreciation. Based on these calculations, the report offers specific recommendations to the board of directors, guiding them on whether to accept or reject the project. The report also identifies key factors that the firm needs to consider, such as future demand, cost of capital, and overall expenses, along with limitations like inflation rate and inventory levels. The conclusion summarizes the findings, emphasizing the project's potential for generating higher returns and increasing firm value over the next six years, contingent on the board's decision. References to relevant financial literature support the analysis.

Running head: CORPORATE FINANCIAL MANAGEMENT
Corporate Financial Management
Name of the Student:
Name of the University:
Authors Note:

CORPORATE FINANCIAL MANAGEMENT
1
Table of Contents
1. Evaluating the NPV and IRR of the project after tax cash flow:...........................................2
2. Depicting NPV and IRR of the project without contract manufacturing sales:.....................5
3. Depicting recommendations to the board regarding the new project with and without
contract manufacturing sales:.....................................................................................................9
Reference:................................................................................................................................12

CORPORATE FINANCIAL MANAGEMENT
2
1. Evaluating the NPV and IRR of the project after tax cash flow:
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Total Initial
investment
$ 1,335,000.00 0 0 0 0 0 0
Sales forecast
New Product $
1,970,000.
00
$
2,470,000.
00
$
3,220,000.
00
$
3,284,400.
00
$
3,350,088.
00
$
3,417,089.
76
Contract
Manufacturing
$
315,000.0
0
$
365,000.00
$
440,000.00
$
448,800.00
$
457,776.00
$
466,931.52
Total sales $
2,285,000.
00
$
2,835,000.
00
$
3,660,000.
00
$
3,733,200.
00
$
3,807,864.
00
$
3,884,021.
28
Raw Material

CORPORATE FINANCIAL MANAGEMENT
3
Cost
New Product $
(591,000.0
0)
$
(741,000.0
0)
$
(966,000.0
0)
$
(985,320.0
0)
$
(1,005,026.
40)
$
(1,025,126.
93)
Contract
Manufacturing
$
(78,750.00
)
$
(91,250.00
)
$
(110,000.0
0)
$
(112,200.0
0)
$
(114,444.0
0)
$
(116,732.8
8)
Total Cost $
(669,750.0
0)
$
(832,250.0
0)
$
(1,076,000.
00)
$
(1,097,520.
00)
$
(1,119,470.
40)
$
(1,141,859.
81)
Operating Income $
1,615,250.
00
$
2,002,750.
00
$
2,584,000.
00
$
2,635,680.
00
$
2,688,393.
60
$
2,742,161.
47
Other deductions
Wage rate $
150,000.0
$
153,000.00
$
156,060.00
$
159,181.20
$
162,364.82
$
165,612.12

CORPORATE FINANCIAL MANAGEMENT
4
0
Factory overheads $
411,300.0
0
$
510,300.00
$
658,800.00
$
671,976.00
$
685,415.52
$
699,123.83
Part replacement $
15,000.00
$
30,000.00
$
30,600.00
$
31,212.00
$
31,836.24
Inventory
increment
$
150,000.0
0
Advertisement
expenses
$
375,000.0
0
$
375,000.00
$
300,000.00
$
150,000.00
$
150,000.00
$
150,000.00
Depreciation $
210,000.0
0
$
210,000.00
$
210,000.00
$
210,000.00
$
210,000.00
$
210,000.00
Salvage value $

CORPORATE FINANCIAL MANAGEMENT
5
200,000.00
Interest on loan $ 92,028.00 $
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
Total deductions $ 92,028.00 $
1,388,328.
00
$
1,355,328.
00
$
1,446,888.
00
$
1,313,785.
20
$
1,331,020.
34
$
1,548,600.
19
EBT $ (1,427,028.00) $
226,922.0
0
$
647,422.00
$
1,137,112.
00
$
1,321,894.
80
$
1,357,373.
26
$
1,193,561.
28
Tax@30% 0 $
68,076.60
$
194,226.60
$
341,133.60
$
396,568.44
$
407,211.98
$
358,068.38
EAT $ (1,427,028.00) $
158,845.4
0
$
453,195.40
$
795,978.40
$
925,326.36
$
950,161.28
$
835,492.90
Total Cash flow $ (1,427,028.00) $
368,845.4
$
663,195.40
$
1,005,978.
$
1,135,326.
$
1,160,161.
$
1,045,492.

CORPORATE FINANCIAL MANAGEMENT
6
0 40 36 28 90
NPV $ 1,734,552.42
IRR 46%
Payback period 2.39 years
2. Depicting NPV and IRR of the project without contract manufacturing sales:
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Total Initial investment $ 1,335,000.00 0 0 0 0 0 0
Sales forecast
New Product $
1,970,000.00
$
2,470,000.00
$
3,220,000.00
$
3,284,400.00
$
3,350,088.00
$
3,417,089.76
Total sales $
1,970,000.00
$
2,470,000.00
$
3,220,000.00
$
3,284,400.00
$
3,350,088.00
$
3,417,089.76
Raw Material Cost
New Product $ $ $ $ $ $

CORPORATE FINANCIAL MANAGEMENT
7
(591,000.00) (741,000.00) (966,000.00) (985,320.00) (1,005,026.40
)
(1,025,126.93)
Total Cost $
(591,000.00)
$
(741,000.00)
$
(966,000.00)
$
(985,320.00)
$
(1,005,026.40
)
$
(1,025,126.93)
Operating Income $
1,379,000.00
$
1,729,000.00
$
2,254,000.00
$
2,299,080.00
$
2,345,061.60
$
2,391,962.83
Other deductions
Wage rate $
150,000.00
$
153,000.00
$
156,060.00
$
159,181.20
$
162,364.82
$
165,612.12
Factory overheads $
354,600.00
$
444,600.00
$
579,600.00
$
591,192.00
$
603,015.84
$
615,076.16
Part replacement $
15,000.00
$
30,000.00
$
30,600.00
$
31,212.00
$
31,836.24
Inventory increment $
150,000.00

CORPORATE FINANCIAL MANAGEMENT
8
Advertisement
expenses
$
375,000.00
$
375,000.00
$
300,000.00
$
150,000.00
$
150,000.00
$
150,000.00
Depreciation $
210,000.00
$
210,000.00
$
210,000.00
$
210,000.00
$
210,000.00
$
210,000.00
Salvage value $
200,000.00
Interest on loan $ 92,028.00 $
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
$
92,028.00
Total deductions $ 92,028.00 $
1,331,628.00
$
1,289,628.00
$
1,367,688.00
$
1,233,001.20
$
1,248,620.66
$
1,464,552.52
EBT $ (1,427,028.00) $
47,372.00
$
439,372.00
$
886,312.00
$
1,066,078.80
$
1,096,440.94
$
927,410.31
Tax@30% 0 $
14,211.60
$
131,811.60
$
265,893.60
$
319,823.64
$
328,932.28
$
278,223.09
EAT $ (1,427,028.00) $
33,160.40
$
307,560.40
$
620,418.40
$
746,255.16
$
767,508.66
$
649,187.22

CORPORATE FINANCIAL MANAGEMENT
9
Total Cash flow $ (1,427,028.00) $
243,160.40
$
517,560.40
$
830,418.40
$
956,255.16
$
977,508.66
$
859,187.22
NPV $ 1,125,966.32
IRR 36%
Payback period 2.8 years