Original Cost $500,0000 $1.3m Estimated life 8 years 7 years Residual value $1m $2.3m Estimates future cash flows 2017 $50,000 $60,000 2018 $80,000 $90,000 2019 $100,000 $200,000 2020 $500,000 $800,000 2021 $600,000 $888,000 2022 $700,000 Thought process in coming to my recommendation: After using the IRR (Internal Rate of Return) and NPV (Net Present Value) for option 1 and option 2 the possible profits became clear which evidently showed that in 5 years option 1 would make more money than option 2 would make in 6 years which makes option 2 the more appealing recommendation. This option would also bring new employment opportunities as the Gold Coast is the fastest growing city in Australia especially with the Commonwealth Games coming up. Also because of the densely populated location of the Gold Coast, it has the potential to attract more business since more people would see the factory and it is within a good driving distance to everything since it is just off the highway. The only negative about this option is that because of how densely populated the Gold Coast is, it would be limiting to how much the factory could expand. Ultimately, the higher the investments internal rate of return is, the more desirable it is to undertake. Strengths and weaknesses of my analysis: The strengths of my analysis is that the IRR and NVP show the potential yearly profits and ultimate selling profit which is the most important factor in deciding on a investment. The weaknesses of my analysis is that it doesn’t reveal the potential costs of each option which also plays a major role in deciding on an investment. Step 3 Feedback to: Feedback from: Taylor Franklin () Step My Comments Step 1: Calculation of ratios Ratios Commentary (Blog) – Calculate economic profit Commentary drivers of economic profit (blog) – Step 2: Develop capital investment decision for your firm Calculation of payback period, NPV and IRR
Original Cost $500,0000 $1.3m Estimated life 8 years 7 years Residual value $1m $2.3m Estimates future cash flows 2017 $50,000 $60,000 2018 $80,000 $90,000 2019 $100,000 $200,000 2020 $500,000 $800,000 2021 $600,000 $888,000 2022 $700,000 Thought process in coming to my recommendation: After using the IRR (Internal Rate of Return) and NPV (Net Present Value) for option 1 and option 2 the possible profits became clear which evidently showed that in 5 years option 1 would make more money than option 2 would make in 6 years which makes option 2 the more appealing recommendation. This option would also bring new employment opportunities as the Gold Coast is the fastest growing city in Australia especially with the Commonwealth Games coming up. Also because of the densely populated location of the Gold Coast, it has the potential to attract more business since more people would see the factory and it is within a good driving distance to everything since it is just off the highway. The only negative about this option is that because of how densely populated the Gold Coast is, it would be limiting to how much the factory could expand. Ultimately, the higher the investments internal rate of return is, the more desirable it is to undertake. Strengths and weaknesses of my analysis: The strengths of my analysis is that the IRR and NVP show the potential yearly profits and ultimate selling profit which is the most important factor in deciding on a investment. The weaknesses of my analysis is that it doesn’t reveal the potential costs of each option which also plays a major role in deciding on an investment. Step 3 Feedback to: Feedback from: Taylor Franklin () Step My Comments Step 1: Calculation of ratios Ratios – Commentary (Blog) Calculate economic profit Commentary – drivers of economic profit (blog) Step 2: Develop capital investment decision for your firm Calculation of payback period, NPV and IRR