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PFF Outcome2

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PFF Outcome 4 – Project Appraisal Nadezda Valeckova Report: Project Appraisal To: Management of Matteck plc Prepared by: Nadezda Valeckova Date: 20/01/2015 Introduction I have been asked to produce a report for management of Matteck plc in which I will evaluate the financial viability of the investment proposal. The company is considering expanding into Asia. This operation would involve the acquisition of a factory, a purchase of several new motor vehicles and a new distribution unit. The following are the estimated costs of the planned investment: Description Cost Factory £ 1,100,000 Motor vehicles £ 500,000 Distribution unit £ 900,000 Total £ 2,500,000 The …show more content…

Therefore project should be accepted. ARR The ARR for the project is 12.8% this is less than required 15%. Therefore the project should be rejected. Recommendation In my opinion the company should reject the project as the ARR is much less than expected and the payback period is nearly as long as the maximum payback period which could put company to danger. Appendix 2 NPV The cash flow has been discounted at rate of 10%. The NPV is £ - 46,700 (negative) Therefore the project should be rejected. The required interest rate which would return an NPV of zero is 9.22%. This is less than the cost of capital of 10%. Other factors Impact of proposal on

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