Financial Analysis Report: Comparing V and T Powerboat Projects

This report presents a financial analysis of two powerboat projects, V and T, for Sonicjet Company. It evaluates the projects using capital budgeting techniques, including Net Present Value (NPV) and payback period, considering factors like cash flows, discount rates, and qualitative aspects such as environmental impact and market competition. The analysis compares the financial performance of each project, providing detailed calculations in the appendices. The report recommends the V powerboat project due to its higher NPV and shorter payback period, satisfying the company's investment criteria and offering a greater return on investment. The report also provides a detailed comparison of both projects at different discount rates, concluding that the V powerboat project is the better investment option for the company.

Financial management

Executive summary
The report is made for the making of the analysis among various opportunities and options
which are available. There is an effective evaluation that has performed and in that the two
options which are T powerboat and V powerboat are analyzed. All the aspects in relation to
them have been covered and there is the identification of the cash flows which are made by
both the projects. They are identified which will help in evaluating the total inflows which are
made in comparison to the outflows. From the evaluation, it is identified that with 20% and
15% as the discount rate there is a better position which will be maintained by the V
powerboats. The outflows in both the projects are equal and there is a difference in the
amount of the inflows and life of the proposal. All of that is considered and proper capital
budgeting techniques are used for the ascertainment of the final results which helps the
business in making the best decisions.

Table of Contents
Executive summary....................................................................................................................2
Introduction................................................................................................................................4
Quantitative findings..................................................................................................................4
Qualitative findings....................................................................................................................5
Recommendation and justification.............................................................................................5
A detailed comparison and further recommendation.................................................................6
Conclusion..................................................................................................................................6
References..................................................................................................................................7
Appendix....................................................................................................................................8

Introduction
In the company, there are various projects which can be undertaken and it is required that
they shall be taken into account in an effective manner. For this proper procedure will be
followed and there will be the determination of the results which will be obtained if the
proposed concept is implemented. In this, there will be the use of the various techniques and
tools which are available in this respect. In this report, all the aspects in relation to the same
will be discussed for Sonicjet Company. There will be proper calculations that will be
performed and by that, all the quantitative aspects will be evaluated. In addition to them,
there are various other factors which affect the final decision making and they will also be
taken into account. There will be an evaluation of the two projects and then the findings will
be obtained with the use of the various discount rates. The comparison will also be made
among both the options and with the help of that, it will be possible to determine the project
that shall be undertaken and will be in the overall interest of the company.
Quantitative findings
There are the details that have been provided for the outflows which will be made and the
inflows that will be received in relation to the V powerboat and T powerboat. All of that data
is identified and used and with that, the final cash flows which will be made are identified.
The capital budgeting techniques have been used and with the help of that final results are
obtained (Maravas and Pantouvakis, 2012). The rate of return for the determination of the
present value is taken to be 20%. All the calculations are made and have been represented in
Appendix 1 and the final results are obtained with that.
The cash flows which are made are decreasing with the time ad in the last year an increase is
made due to the recovery of the working capital and salvage value of the plant (Park and
Jang, 2013). It can be noted that in the case of V powerboats there is the NPV of $3533760.2
and the payback period is determined to be 4.01. It has been provided by the company that
the required discounted payback period for the project is 4.5 years. From this, it can be said
that the requirements which have been set by the company are fulfilled.
The evaluation is made for the T powerboat also in which the life of the project is increased
to 6 years. The cash flows in the same are increasing in a continuous manner with an increase
in life. The cash flows have been provided and with that, the calculation of the payback

period and NPV is made. It can be noted in Appendix 1 that the NPV is $2083361 with a rate
of 20% and the payback period for the same is 4.98 years.
Qualitative findings
In the projects, there are various aspects that are to be taken into account in addition to the
gains and other quantitative facts. It has been noted that there is an opportunity that is
available with the business and that new technology will be used to make the powerboats be
environmental friendly (Chauhan and Singh, 2014). For that proper evaluation has been made
in which all the key areas are considered such as designing and promotion. The new plant has
been considered which will be required and that will help in making the company achieve the
required targets. It is identified that in the case of V powerboats there will be a decline in the
sales every year as the pollution will be increased with more production and also the high
level of competition is involved.
The company will be maintaining the capital structure also by using both debt and equity.
There will be debentures that will be issued and for the remaining amount, the issue of the
shares will be made. This will be creating a balance among them and that will be helping the
company in managing the capital structure in an effective manner (Hasan et al., 2016). It is
identified that tax requirements are also complied with by the company and will be paying
the same at a rate of 30%. It is determined that there will be excessive carbon emission with
the V powerboats and due to that, the T powerboats are being taken into consideration.
Recommendation and justification
All of the calculations have been made and in that various techniques which are required to
be used have been considered. The results are obtained and from that it is identified that it
will be beneficial for the company to go with the V powerboats as they will be providing with
the higher NPV and also the payback period which is identified in relation to them is less
than T powerboat and will be satisfying the requirement of the company that payback should
be 4.5 years. The same is identified at 4.01 years which is far less than the required and this
will be providing an opportunity to earn more (Pivorienė, 2017). In the calculation, the
opportunity cost which will be involved has also been considered and with that, the final
outcome which will be available after covering the loss from the discontinuance of past
process has been identified.

A detailed comparison and further recommendation
Appendix 2 shows all the calculation which are made for the making of the comparison
among both the available projects (Žižlavský, 2014). In that, there is the consideration of the
discount rate at two levels which are at 15% and 20%. In that, it is identified that the benefits
which are made by the V powerboat are more in comparison to the T powerboat. It is
identified that at 15% the NPV of V powerboat is $5679023.7 and that of the T powerboat is
$4410967. In the case of the 20% discount rate, the NPV is identified to be $3533760.2 and
$2083361 for V and T powerboats respectively (Pasqual, Padilla, and Jadotte, 2013). It can
be noted that in both cases the higher amount is obtained in V powerboat and so they will be
preferred over others.
The comparison will also be made on the basis of the payback period method in which the
time period in which the company will be recovering the cost is identified (Kim, Shim and
Reinschmidt, 2013). This helps in knowing whether any gain will be made during the lifetime
of the project or not. For that, the calculation is made by using the discounted cash flows and
it is identified that 15% is 3.51 and 4.36 years for the V and T powerboats respectively. At
20% it is 4.01 for the V powerboat and 4.98 years for the T powerboats (Gorshkov et al.,
2018). It can be seen that a lesser duration will be taken by the V powerboat to recover the
cost although there is some amount of the outflows which are involved in them.
On the basis of the obtained results, it is advised that V powerboats shall be undertaken as it
will be proved with the higher benefits and that too in a lesser duration of time.
Conclusion
From the report, it can be concluded that before taking any of the decisions in relation to the
business there is the need to make the proper evaluation. There has been the identification of
the cash flows which are involved and then evaluation of them is made with the help of the
available capital budgeting techniques. In that NPV and discounted payback period have been
used and they provided the required results which have helped in making the correct decision.
It is identified that it will be in the interest of the company to use the V powerboat project
like that will be provided with the higher NPV and also the pre-required payback period will
be covered and there will be the recovery of the cost in earlier manner.

References
Chauhan, A. and Singh, A.P. (2014) Optimal replenishment and ordering policy for time
dependent demand and deterioration with discounted cash flow analysis. International
Journal of Mathematics in Operational Research, 6(4), pp.407-436.
Gorshkov, A.S., Vatin, N.I., Rymkevich, P.P. and Kydrevich, O.O. (2018) Payback period of
investments in energy saving. Magazine of Civil Engineering, 78(2).
Hasan, M., Zhang, M., Wu, W. and Langrish, T.A. (2016) Discounted cash flow analysis of
greenhouse-type solar kilns. Renewable energy, 95, pp.404-412.
Kim, B.C., Shim, E. and Reinschmidt, K.F. (2013) Probability distribution of the project
payback period using the equivalent cash flow decomposition. The Engineering
Economist, 58(2), pp.112-136.
Maravas, A. and Pantouvakis, J.P. (2012) Project cash flow analysis in the presence of
uncertainty in activity duration and cost. International journal of project management, 30(3),
pp.374-384.
Park, K. and Jang, S.S. (2013) Capital structure, free cash flow, diversification and firm
performance: A holistic analysis. International Journal of Hospitality Management, 33,
pp.51-63.
Pasqual, J., Padilla, E. and Jadotte, E. (2013) Equivalence of different profitability criteria
with the net present value. International Journal of Production Economics, 142(1), pp.205-
210.
Pivorienė, A. (2017) Real options and discounted cash flow analysis to assess strategic
investment projects. Economics and Business, 30(1), pp.91-101.
Žižlavský, O. (2014) Net present value approach: method for economic assessment of
innovation projects. Procedia-Social and Behavioral Sciences, 156, pp.506-512.

Appendix
Appendix 1
V powerboat
Initial outflow
Particulars Amount
Designing 400000
Promotion 150000
Plant 12000000
Transportation cost 40000
Installation cost 160000
Working capital 350000
Market penetration
expense
100000
Total outflow 13200000
Initial outflow
Particulars Amount
Designing 400000
Promotion 150000
Plant 12000000
Transportation cost 40000
Installation cost 160000
Working capital =200000+190000-
40000
Market penetration
expense
100000
Total outflow =SUM(B5:B11)
Cash inflows
Particulars 1 2 3 4 5
Sales of V boat 12000000 1110000
0
10200000 9300000 8400000
Sale of powerboat
parts
240000 240000 240000 240000 240000
Total revenue 12240000 1134000 10440000 9540000 8640000

0
Cost of V boat 4800000 4440000 4080000 3720000 3360000
Cost of parts 96000 96000 96000 96000 96000
Opportunity cost 60000 60000 60000 60000 60000
Total cost 4956000 4596000 4236000 3876000 3516000
Contribution 7284000 6744000 6204000 5664000 5124000
Fixed factory
overhead
120000 120000 120000 120000 120000
Depreciation 1830000 1830000 1830000 1830000 1830000
EBIT 5334000 4794000 4254000 3714000 3174000
Tax @ 30% 1600200 1438200 1276200 1114200 952200
Net profit 3733800 3355800 2977800 2599800 2221800
Depreciation 1830000 1830000 1830000 1830000 1830000
Cash inflow 5563800 5185800 4807800 4429800 4051800
Terminal cash flow 4850000
Net cash inflow 5563800 5185800 4807800 4429800 8901800
Cash inflows
Particulars 1 2 3 4 5
Sales of V boat =400*30000 =370*30000 =340*3000
0
=310*3000
0
=280*30000
Sale of
powerboat parts
=20000*12 =20000*12 =20000*12 =20000*12 =20000*12
Total revenue =SUM(B17:
B18)
=SUM(C17:C
18)
=SUM(D17
:D18)
=SUM(E17
:E18)
=SUM(F17:
F18)
Cost of V boat =B17*0.4 =C17*0.4 =D17*0.4 =E17*0.4 =F17*0.4
Cost of parts =B18*0.4 =C18*0.4 =D18*0.4 =E18*0.4 =F18*0.4
Opportunity
cost
=5000*12 =5000*12 =5000*12 =5000*12 =5000*12
Total cost =SUM(B20:
B22)
=SUM(C20:C
22)
=SUM(D20
:D22)
=SUM(E20
:E22)
=SUM(F20:
F22)
Contribution =B19-B23 =C19-C23 =D19-D23 =E19-E23 =F19-F23
Fixed factory
overhead
120000 120000 120000 120000 120000
Depreciation =(B7+B8+B9
)*0.15
=(B7+B8+B9
)*0.15
=12200000
*0.15
=12200000
*0.15
=12200000*
0.15
EBIT =B24-B25-
B26
=C24-C25-
C26
=D24-D25-
D26
=E24-E25-
E26
=F24-F25-
F26
Tax @ 30% =B27*0.3 =C27*0.3 =D27*0.3 =E27*0.3 =F27*0.3
Net profit =B27-B28 =C27-C28 =D27-D28 =E27-E28 =F27-F28
Depreciation =12200000*0
.15
=12200000*0
.15
=12200000
*0.15
=12200000
*0.15
=12200000*
0.15
Cash inflow =B29+B30 =C29+C30 =D29+D30 =E29+E30 =F29+F30
Terminal cash
flow
=4500000+3
50000
Net cash inflow =B31+B32 =C31+C32 =D31+D32 =E31+E32 =F31+F32

NPV with 20%
Particulars Cash
inflows
PVF
@
20%
PV Cumulativ
e cash
flows
Year 0 -
13200000
1 -
13200000
-13200000
Year 1 5563800 0.833 4636500 -8563500
Year 2 5185800 0.694 3601250 -4962250
Year 3 4807800 0.579 2782291.7 -2179958
Year 4 4429800 0.482 2136284.7 -43673.61
Year 5 8901800 0.402 3577433.8 3533760.2
NPV 3533760.2
Payback period 4.01
Particulars Cash inflows PVF @ 20% PV Cumulative
cash flows
Year 0 -13200000 =1/1.2^0 =J29*K29 =L29
Year 1 5563800 =1/1.2^1 =J30*K30 =M29+L30
Year 2 5185800 =1/1.2^2 =J31*K31 =M30+L31
Year 3 4807800 =1/1.2^3 =J32*K32 =M31+L32
Year 4 4429800 =1/1.2^4 =J33*K33 =M32+L33
Year 5 8901800 =1/1.2^5 =J34*K34 =M33+L34
NPV =SUM(L29:L3
4)
Payback
period
=4+(43673.61/
L34)
T powerboat project
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Cash inflows -
1320000
0
3600000 420000
0
460000
0
500000
0
560000
0
610000
0
PVF @ 20% 1 0.833 0.694 0.579 0.482 0.402 0.335
PV of inflows -
1320000
0
3000000 291666
7
266203
7
241126
5
225051
4
204287
8
NPV 208336
1
Cumulative cash
flow
-
1320000
0
-
1020000
0
-
728333
3
-
462129
6
-
221003
1
40483.5
4
208336
1
Payback period 4.98

Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Cash
inflows
=-B12 3600000 4200000 4600000 5000000 5600000 6100000
PVF @
20%
=1/1.2^0 =1/1.2^1 =1/1.2^2 =1/1.2^3 =1/1.2^4 =1/1.2^5 =1/1.2^6
PV of
inflows
=B43*B
44
=C43*C
44
=D43*D
44
=E43*E4
4
=F43*F4
4
=G43*G
44
=H43*H
44
NPV =SUM(
B45:H4
5)
Cumulative
cash flow
=B45 =B47+C
45
=C47+D
45
=D47+E
45
=E47+F4
5
=F47+G
45
=G47+H
45
Payback
period
=4+(-
F47/
G45)
Appendix 2
V powerboat
NPV with 15%
Particular
s
Cash
inflows
PVF @
15%
PV Cumulative cash
flows
Year 0 -
13200000
1 -
13200000
-13200000
Year 1 5563800 0.870 4838087 -8361913
Year 2 5185800 0.756 3921209.8 -4440703
Year 3 4807800 0.658 3161206.5 -1279497
Year 4 4429800 0.572 2532752.5 1253255.9
Year 5 8901800 0.497 4425767.9 5679023.7
NPV 5679023.7
Payback period 3.51
Particulars Cash inflows PVF @ 15% PV Cumulative
cash flows
Year 0 -13200000 =1/1.15^0 =J17*K17 =L17
Year 1 5563800 =1/1.15^1 =J18*K18 =M17+L18
Year 2 5185800 =1/1.15^2 =J19*K19 =M18+L19
Year 3 4807800 =1/1.15^3 =J20*K20 =M19+L20
Year 4 4429800 =1/1.15^4 =J21*K21 =M20+L21
Year 5 =F33 =1/1.15^5 =J22*K22 =M21+L22
NPV =SUM(L17:L23
)
Payback
period
=3+(1279497/
L21)

T Powerboat
NPV with 15%
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Cash inflows -
1320000
0
3600000 420000
0
460000
0
500000
0
560000
0
610000
0
PVF @ 15% 1 0.870 0.756 0.658 0.572 0.497 0.432
PV of inflows -
1320000
0
3130435 317580
3
302457
5
285876
6
278419
0
263719
8
NPV 441096
7
Cumulative cash
flow
-
1320000
0
-
1006956
5
-
689376
2
-
386918
7
-
101042
1
177376
9
441096
7
Payback period 4.36
NPV with
15%
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Cash inflows =-B12 360000
0
420000
0
460000
0
500000
0
560000
0
6100000
PVF @ 15% =1/1.2^
0
=1/1.15
^1
=1/1.15
^2
=1/1.15
^3
=1/1.15
^4
=1/1.15
^5
=1/1.15^6
PV of inflows =B54*
B55
=C54*
C55
=D54*
D55
=E54*
E55
=F54*
F55
=G54*
G55
=H54*H55
NPV =SUM(B56:
H56)
Cumulative
cash flow
=B56 =B58+
C56
=C58+
D56
=D58+
E56
=E58+
F56
=F58+
G56
=G58+H56
Payback
period
=4+(-F58/
G56)