Financial Project Report: Tech Train Project Evaluation and Analysis

This report presents a financial project evaluation for Tech Train, a company providing corporate training. The report analyzes two alternatives: utilizing a subsidiary company or using an online education platform. The project evaluation is conducted using net present value (NPV) analysis under opti...Read More

FINANCIAL PROJECT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Main body........................................................................................................................................1
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
Table 1Project evaluation in case of pessimisic scenerio for first alternative.................................4
Table 2Project evaluation in case of base scenerio for first alternative...........................................4
Table 3Project evaluation in case of optimistic scenerio for first alternative..................................5
Table 4Project evaluation in case of optiimisic scenerio for second alternative.............................5
Table 5Project evaluation in case of base scenerio for second alternative......................................6
Table 6Project evaluation in case of pesimisic scenerio for second alternative..............................6

INTRODUCTION
Projects are the one of the important factor that determine growth of any business firm.
There are number of factors that need to be taken in to account while preparing project related
details and evaluating same. Current research report is based on case study of Tech train that is
givng corporate training to the individuals that are employed in specific company. There are two
alternatives in front of firm either it can make use of services of its subsidiary company or can
make use of online education platform that is provided by other company. Proposal related to
both firms are discussed in detail in the report and in this regard project evaluation techniques
are applied on cash flows and it is identified that which of option will be better. Apart from this,
for each option different scenerios are given and in each scenerio project evaluation is done.
Hence, it can be said that scope of present research study is wide and lots of things are covered in
the report.
Main body
Project evaluation method is applied on two alternatives and under different scenerios. As
mentioned in introduction section of the report Tech train have two options either it can make
use of services of its subsidiary company or it can take service of other form under which firm
give training through online mode only. It is important to understand both projects deeply so that
right one option can be selected by the business firm. It can be seen that in case firm make use of
services of its subsidiary company Hiimpact then cost will be 3.3 million which is huge. Main
reason behind such high cost is that mode of class will be offline and there are highly talented
trainers that have deep understanding on research topic and same for other company that provide
training through online platform is 0.5 million (Posavac, 2015). Comparison of both facts reflect
that project one seem costly for the firm then second alternative. There is also huge difference in
operating cost of both projects as same for first alternative under which usage of services of
subsidiary company is required is 2126160 and same for other alternative is 288000. Apart from
this, difference in both projects in terms of total investment amount is 7257960 and same for
second alternative is 528000. Three situations are projected which are good, neutral and bad and
it is identified that ccash flows in all these cases heavily vary from each other. It is very
important to identify that if worst happened that currently management does not expect what can
be happened. By doing so mangement can prepare itself to handle any situation and can decide
easily whether to select any project or not. As per case study if Byod will leave its team that is
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operating in firm subsidiary then it will not be able to perform well. Hence, it is very important
to make projection of cash flows and identifying trends. In order to make comparison easy it is
assumed that same cash flows will be observed from second project also.
1 2 3 4 5 6 7 8
23.46
29.33
35.19
40.47 42.49 43.34 44.21 45.1
Pessimestic
Figure 1Pessimistic cash flows trends
1 2 3 4 5 6 7 8
0
10
20
30
40
50
60
24.21
31.23
38.42
47.25 50.56 52.08 53.64 55.25
Base
Figure 2Base cash flows estimation
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1 2 3 4 5 6 7 8
28.9
39.02
50.73
60.87
66.96
70.31
73.82
77.51
Optimistic
Figure 3Optimistic policy estimation
1 2 3 4 5 6 7 8
0
10
20
30
40
50
60
70
80
90
23.46 29.33 35.19 40.47 42.49 43.34 44.21 45.1
24.21
31.23
38.42
47.25 50.56 52.08 53.64 55.25
28.9
39.02
50.73
60.87
66.96 70.31 73.82 77.51
Chart Title
Pessimestic Base Optimistic
Figure 4Different trends of optimistic, pessimistic and base condition
It can be seen from above chart that there is large difference in cash flows that are received under
optimistic, pessimistic and base condition. Chart clearly revealed that in case of base and
pessimistic condition in initial 4 to 5 years almost there are similar cash flows but after four
years difference appear in optimistic and worst condition and pessimistic condition is expected to
be more worst. Base condition can be improved after 4 to 5 years. In case of optimistic condition
cash flows are increasing at rapid rate which is good and it can be said that if cash flows
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reflected by optimistic conditon are earned then firm can earn good amount of revenue in its
business.
Table 1Project evaluation in case of pessimisic scenerio for first alternative in respect to HI
Impact
Pessimistic
First alternative Investment amount PV factor PV of cash flows
Cash flow 7
2017 23.46 0.973375105 22.83537995
2018 29.33 0.947459094 27.78897523
2019 35.19 0.922233095 32.45338261
2020 40.47 0.897678735 36.32905841
2021 42.49 0.873778133 37.12683286
2022 43.34 0.850513881 36.86127162
2023 44.21 0.827869038 36.60009018
2024 45.1 0.805827112 36.34280274
Total 266.3377936
NPV 259
Investment amount of 7 million is computed by adding investment amount and operation
cost. Investment amount is is 5131800 and operation cost is 2126160 and both are added to
arrive at investment amount 7257960 and all values are in million. Due to this reason 7 million is
represented as 7. Net present value method is one under which all present value cash flows are
summed up and from same initial investment value is subtracted to compute net value of cash
flows (Net present value method, 2017).It can be seen from above table that NPV of the project
(first alternative) is 259 and discount rate of 2.74% is taken in to account. By using this rate
discounting of cash flows is done. On this basis it is identified that if capital expenditure that is
made on project is subtracted from the cash flows then valueo of the project will be equal to 259.
Table 2Project evaluation in case of base scenerio for first alternative
Base
First alternative
Investment
amount
PV
factor
PV of cash
flows
Cash flow 7
2017 24.21 0.974075 23.58234895
2018 31.23 0.974756 30.44163579
2019 38.42 0.97542 37.47563538
2020 47.25 0.976067 46.11914299
2021 50.56 0.976696 49.38176295
2022 52.08 0.97731 50.89828535
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2023 53.64 0.977907 52.45493317
2024 55.25 0.978489 54.0615107
344.4152553
337.1652553
Interpretation
It can be seen from table that net present value of the project is 337.16 which is higher
then same that is observed in case of pessimistic factor where net present value is 259. Hence, it
can be said that good amount of profit can be gained on base project than pessimistic.
Table 3Project evaluation in case of optimistic scenerio for first alternative
Optimistic
First
alternative
Investment
amount PV factor PV of cash flows
Cash flow 7
2017 28.9
0.97405632
9 28.15022791
2018 39.02
0.97403841
6 38.00697901
2019 50.73
0.97402096
9 49.41208375
2020 60.87
0.97400397
5 59.28762194
2021 66.96
0.97398742
3 65.21819782
2022 70.31
0.97397130
1 68.47992218
2023 73.82
0.97395559
9 71.89740235
2024 77.51
0.97394030
7 75.49011318
Total 455.9425481
NPV 449
Interpretation
It can be seen from above table that net present value of project is 449 which greater then
value of same that is observed in case of pessimistic and base scenrios. Hence, there is huge
difference in optimistic, base and pessimistic projects and in case latter one situation occurred
then very less amount of profit will be earned in the business.
Table 4Project evaluation in case of optiimisic scenerio for second alternative in repect to firm
providing online education services
Pessimistic
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Second alternative Investment amount PV factor PV of cash flows
Cash flow 0.5
2017 23.46 0.973375105 22.83537995
2018 29.33 0.947459094 27.78897523
2019 35.19 0.922233095 32.45338261
2020 40.47 0.897678735 36.32905841
2021 42.49 0.873778133 37.12683286
2022 43.34 0.850513881 36.86127162
2023 44.21 0.827869038 36.60009018
2024 45.1 0.805827112 36.34280274
266.3377936
266
Interpretation
Investment of 0.5 million is made and this is computed by adding investment amount and
operational cost. Investment amount is 240000 and operation cost is 288000 and by adding these
values invesment amount of 528000 is computed which is represented as 0.5 million. In case of
second project it is proposed that NPV value is 266 in case of pessimistic scenerio and same in
case of first alternative is 259. On this basis it can be said that second alternative can give better
return to firm even there is pessimistic scenerio in the business.
Table 5Project evaluation in case of base scenerio for second alternative
Base
Second
alternative
Investment
amount
PV
factor
PV of cash
flows
Cash flow 0.50
2017 24.21 0.974075 23.58234895
2018 31.23 0.974756 30.44163579
2019 38.42 0.97542 37.47563538
2020 47.25 0.976067 46.11914299
2021 50.56 0.976696 49.38176295
2022 52.08 0.97731 50.89828535
2023 53.64 0.977907 52.45493317
2024 55.25 0.978489 54.0615107
Total 344.4152553
NPV 343.9152553
Interpretation
NPV of second alternative is 343 and same in case of first alternative is 337. In this case
also higher NPV is observed in case of second alternative and on this front also same is assumed
viable for the business firm.
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Table 6Project evaluation in case of pesimisic scenerio for second alternative
Optimistic
Second
alternative
Investment
amount PV factor
PV of cash
flows
Cash flow 0.5
2017 28.9
0.97405632
9 28.15022791
2018 39.02
0.97403841
6 38.00697901
2019 50.73
0.97402096
9 49.41208375
2020 60.87
0.97400397
5 59.28762194
2021 66.96
0.97398742
3 65.21819782
2022 70.31
0.97397130
1 68.47992218
2023 73.82
0.97395559
9 71.89740235
2024 77.51
0.97394030
7 75.49011318
Total 455.9425481
NPV 455
Interpretation
NPV of project in case of optimistic scenerio is 455 and same in case of first alternative
in same scenerio is 449. This gap clearly reflect that first alternative is viable because its NPV is
slightly higher then NPV of first alternative.
Hence, it is recommended to the firm that it must quote 0.5 million as fee for corporate
training and must consider second alternative in its business.
CONCLUSION
On the basis of above discussion it is identified that there is huge importance of project
evaluation method for the business firms and they must use it to make investment related
decisions. It is also concluded that second option under which through online platform training is
proposed must be selected so that cost can be kept low in the business and good amount of profit
can be earned in any condition whether it is optimistic, pessimistic or any other condition.
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REFERENCES
Books and journals
Posavac, E., 2015. Program evaluation: Methods and case studies. Routledge.
Online
Net present value method, 2017. [Online]. Available through:<
https://www.accountingformanagement.org/net-present-value-method/>.
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APPENDIX
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