Capital Budgeting Techniques Like Net Present Value
The following paper analyzes a project from financial perspectives using the capital budgeting techniques like Net Present Value (NPV) and Internal Rate of Return (IRR).
Background
My dad has a textile business, involved in embroidery and painting of the fabric. I have been visiting my dad’s office complex and observing the whole process of clothes manufacture. The most important asset for the business is a large machine required for whole painting process. The existing machine with the business is in use from past 4 years and has to be discarded due to some operational issues. As a student of finance, I will analyze the option of replacing this machine with a new one. In analyzing various options from where to purchase the machine, I searched for various dealers, and compared the products with the prices they offered. I narrowed down the choice to one machine provided by Stihl Machinery Co., Ltd. But then dad’s financial manager, Mr. David Jones, asked me to reconsider the option. He suggested that the existing machine can still run for another 5 years and the new machine is also expected to work for just five years. Also, the price of the new machine is quite high so it is better to continue using the same old machine. On this argument, I decided to do a detailed analysis of the option to replace the old machine. Only after the financial analysis, I will decide and suggest whether to buy the new machine or not.
Analysis and results
The financial manager did…

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