A Project On The Conch Republic

1095 Words5 Pages
The Conch Republic is an organization which produces reputable electronics is seeking to advance one of their current production lines to stay abreast to changing technology. The company is seeking to introduce a new smart phone with the hopes of boosting the company’s revenue and reputation as a smart phone producer. As a person hired to assess the financial undertaking of Conch Republic an overview of the projects planned expense must be generated. However, in order to accomplish this task a capital investment analysis must be conducted in order to determine the projects viability. This will be done by analyzing several things. Those things that must be understood are the projects payback period, the net present value (NPV), internal…show more content…
Thus, by year three the company will be making a profit off the investment as year three is 86.73 million profit by 55.35 cost giving the company a 31.38 million dollar surplus. Generally, a period of payback of three year or less is acceptable (Reference Entry) causing this project to be viable based off the payback analysis. Although, these calculations are flawed. The reason for this is because the time value of money is not taken into effect when calculating payback periods which is where IRR can further assist in a more realistic financial picture (Reference Entry). IRR is the rate at which the net present value becomes zero (Ross, Westerfield & Jordan, 2013). Additionally, IRR is calculated first by determining the Net Present Value. The Net Present Value is the variance concerning the market value and its cost (Ross, Westerfield & Jordan, 2013). Net present value is calculated by first finding the present value. For instance, 21.83 million (year 1 revenue from above) divided by 1 plus the companies rate of return of 12%. Thus, 21.83/(1+.12)= 19.49 is the present value for year 1. Furthermore, by adding the total revenue over the next 5 years we get 21.85+ 28.025+36.875+30.975+23.6=132.325 million is the expected value of revenue. That amount now needs to be placed into the present value equation previously discussed only this time with the exponent of 5 to cover the next 5 years. 132.325/(1+.12)^5=75.08 (rounded). Moreover, if