Wednesday, May 1, 2019
Capital Investment Proposal of Mineral Plc Essay - 8
Capital Investment Proposal of Mineral Plc - Essay ExampleThe objective of this report, therefore, is to conduct the soundness of the proposed majuscule investment from the angles of financial feasibility, country endangerment of Medco Republic and the foreign exchange risk in undertaking transactions in the currency of Medco Republic as against the British Pounds as the investments the perpetration of substantially larger sums by the Company to be recouped over a longer period. The analysis is establish on a review of the pull in cash flows from the project using the recognized capital budgeting valuation methods of Net Present Value (NPV) and Internal target of Return (IRR), taking the weighted average represent of capital of the Company of 15% as the hurdle rate and the rate for discounting the present value of early cash flows from the project.Financial Feasibility The financial feasibility of any capital investment proposal potbelly be judged based on the ability of t he project to enhance the shareholders wealth by contributing positive net cash inflows from the proposed investments. Just any other domestic capital project is being evaluated, for the international investments can also be evaluated by calculating the Net Present Value (NPV) prospective cash flows expect out of the project. The NPV of the project depends on the initial investment or initial cash flow, expected future cash flows and the cost of capital. Based on the comparison of the NPV of the future cash flows with the proposed capital investment the feasibility of the project can be established. While working out the NPV the effect of the factors like Sales reality (additional sales), cannibalization (loss of sales), opportunity cost, transfer pricing and fees and royalties on the future cash flows should be taken into account. The Internal Rate of Return (IRR) is the other criterion that needs to be carefully looked into while deciding on the capital investment.In the case of the proposed capital investment proposals, the NPV and IRR from the projects have been worked out and exhibited in the Appendix. From the NPV calculations, it is observed that the project has a nix net present value which implies that the project is not acceptable.
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