Financial Analysis: Evaluating Project Decisions for X plc Report

This finance report evaluates two potential projects (A and B) for X plc, a UK-based vehicle parts manufacturer, using Net Present Value (NPV) and payback period calculations. The analysis reveals that Project B (mechanical project) is more profitable due to its higher NPV (£29655.6) compared to Project A (technological project) with an NPV of £26595.67, despite similar payback periods (2 years 7 months vs. 2 years 5 months). The report also emphasizes the importance of non-financial factors, such as meeting regulatory requirements, industry standards, improving staff morale, and maintaining good relationships with customers, suppliers, and the community. The conclusion recommends that X plc invest in Project B to balance both financial and non-financial considerations for long-term success.

Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Evaluating the decision relating to most suitable project ...........................................................3
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................1

INTRODUCTION
Finance is referred as the broader term that describes study, system of the investments,
money and the other finance related instruments. In other words, it means managing money
involving an activity such as borrowing, budgeting, saving, lending and forecasting. The present
study is based on X plc, reputed company dealing in manufacturing the parts of the vehicle in
UK and parts of Europe. Furthermore, the report highlights the computation of payback and the
net present value of the two projects. Moreover, the study presents the financial and the non-
financial factors that are to be considered while selecting the best project.
TASK
Evaluating the decision relating to most suitable project
Net present value- It is been defined as present value of all the future cash flows in
relation to a particular investment project. This capital budgeting technique helps in evaluating
an investment or the project in which firm is planning to invest it money (Roy and Hota, 2017).
Positive or greater net present value reflects that the profits is profitable, however, negative or
lower NPV depicts that the proposal will incur losses to an organization.
Payback period- It means the method that evaluates a time period within which the
company will be recovering its initial outlay cost. The investments that contains even cash flows
are calculated by dividing initial investment cost with that of annual cash flows (Chadha and
Sharma, 2019). Longer the payback period, means that the project will take longer time in
covering its initial cost while shorter payback reflects that short time period is been taken to
recover initial outlay (Maáji and Barnett, 2019).
Project A
Technological project
Year Cash inflows Discounting factor
Discounted cash
flows
1 8000 0.91 7272.73
2 10000 0.83 8264.46
3 12000 0.75 9015.78
4 15000 0.68 10245.20
5 19000 0.62 11797.51
Sum of discounted 46595.67

cash flows
less: Initial
investment 20000
Net Present Value 26595.67
Year Cash inflows Cumulative cash inflows
1 7272.73 7272.73
2 8264.46 15537.19
3 9015.78 24552.97
4 10245.20 34798.17
5 11797.51 46595.67
Initial investment 20000
Payback period 2
0.5
Payback period 2 Years and 5 months
Project B
Mechanical Project
Year Cash inflows Discounting factor
Discounted cash
flows
1 10000 0.91 9090.91
2 15000 0.83 12396.69
3 17000 0.75 12772.35
4 19000 0.68 12977.26
5 20000 0.62 12418.43
Sum of discounted
cash flows 59655.6
less: Initial
investment 30000

Net Present Value 29655.6
Year Cash inflows Cumulative cash inflows
1 9090.91 9090.91
2 12396.69 21487.60
3 12772.35 34259.95
4 12977.26 47237.21
5 12418.43 59655.64
Initial investment 30000
Payback period 2
0.7
Payback period 2 Years and 7 months
From the above analysis, it has been observed that project B tends to be more profitable
as compared to project A. This means that X plc must make investment in mechanical project as
its Net present value is greater resulting as £ 29655.6 than the technological project's NPV as £
26595.67. This clearly shows that project B will generate higher profitability for X plc than
project A as high NPV seems as better performance of the proposal or better option for the firm
to choose or invest in. Moreover, Payback period of project B is similar or very close to project
A as 2 years 7 months and 2 years 5 months which means that X plc should invest in project B as
it will take very less time or only 2 years & 7 months in covering the initial investment (Lin,
Huang and Wei, 2018). These measures acts as the financial factors which the firm needs to
focus on for making best possible decisions with respect to desirability, feasibility and
profitability of the project.
Although financial factors are counted as vital for the company in its process of decisions
making but there are several non-financial measures that also plays a critical role in the selection
of the most suitable project (Gupta and Sharma, 2017). The non-financial factors that need to be
taken into account by X plc in order to make suitable business decisions includes meeting with
the requirements of the future and the current legislation, matching an industry standards and the
good practices, improving the morale of the staff that makes it easier in recruiting and retaining

the best talent at the workplace (Saleheen and et.al., 2017). Attaining improved relationship with
the customers and the suppliers plays a crucial role for the business at the time of making
investment decisions in respect of selecting the most viable project. X plc also has to look
towards improving its brand reputation and the relationships with its society and the local
community at the time of making the business decisions with regards to investing or selecting the
proposal. Developing capabilities of the business like building experience and the skills in the
new areas or in strengthening the systems of the management. It is also considered as very
essential non-financial factor that needs be emphasized by X plc for deciding the best project that
is the mechanical project (Non-financial factors, 2018). While seeking for choosing the most
suitable investment proposal, X plc needs to take care about the most crucial measure that is
dealing and coping up with the future threats like preventing or protecting the IPR rights against
a potential competition.
Thus, by choosing or by making investment in the project B which is a mechanical
project, X plc could be able to balance financial as well as the non-financial factors effectively
and efficiently. This is because if the project will generate higher profits, the company can
automatically create better relations with its customers, society and suppliers. This in turn
enhances the reputation of the company in the overall market or industry against its competitors.
CONCLUSION
By summing up the above report, it has been identified that mechanical or project B is
counted as profitable investment for X plc and it helps the company in achieving growing
success in the future. It also enables the firm in dealing with non-financial factors appropriately
in order to gain a leading position in the market.

REFERENCES
Books and journals
Chadha, S. and Sharma, S. K., 2019. Capital budgeting practices: a survey in the selected Indian
manufacturing firms. International Journal of Indian Culture and Business
Management. 18(4). pp.381-390.
Gupta, R. and Sharma, S., 2017. Non-Financial Determinants of Corporate Credit Ratings. Int. J.
Eng. Technol. Sci. Res. 4. pp.412-415.
Lin, Y. C., Huang, C. Y. and Wei, Y. S., 2018. Perfectionist decision-making style and ethical
investment willingness: A two-factor causal mediation model. Management
Decision. 56(3). pp.534-549.
Maáji, M. M. and Barnett, C., 2019. Determinants of Capital Budgeting Practices and Risks
Adjustment among Cambodian Companies. Archives of Business Research. 7(3).
Roy, D. and Hota, D. C., 2017. Role of Non-Financial Factors in Industrial Investment
Decisions: Findings from Survey. Research Bulletin. 43(3). pp.33-48.
Saleheen, J. and et.al., 2017. The financial system and productive investment: new survey
evidence. Bank of England. Quarterly Bulletin. 57(1). p.4.
Online
Non-financial factors. 2018. [Online]. Available through:
<https://www.nibusinessinfo.co.uk/content/non-financial-factors-investment-appraisal>
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