This paper will evaluate and demonstrate a manufacturing company options about launching a new product. This will be determined using the payback period that they plan to invest in this adventure. This will be performed by figuring out the company net present value and cash flow to determine if a project should be accepted within a three year payback period.
The formula that was used to find the payback period was Payback Period = Investment (Total Cost of the Project) / Annual Cash Inflow. The formula used to calculate the net present value is as followed (1+r) ^t. Please click link to view excel spreadsheet for the assignment financial management unit 4 IP excell.xlsx.
In order for a project to be accepted using the Payback rule the project according to Brooks, (2010) states that it is okay to accept a project if the payback period is less than maximum years the company is willing to accept. On that, same note if the payback period is longer than the three year that is required by the company then the project need to be rejected. For example, the payback period for this assignment is at 2.9 which mean that the project can be accepted because it is under the three years that the company requires. By the project being boarder line, I would like more clarity because if a person would round the payback period then the project would be denied.
When evaluating the net present value a person has to take into considers the time value of money, the cash flow and the project life span. When looking at the spreadsheet a person can see that, a company would profit from the new project. The rules for evaluating the net present value stipulates to accept the project if net present value is >= 0. So this mean the project would be accept using the net present value rule.
When considering accepting a project that requires...