Corporate Finance Coursework Example | Topics and Well Written Essays - 2000 words

Corporate Finance - Coursework ExampleHowever, the application of the IRR technique revealed that the go out has an IRR of 20.2% which is less than the rates FCL uses to discount their investings. In consideration of the rate of inflation and the fact that there seem to be no behind for using a 21 per cen m and a 26 per cent rate of inflation as suggested in a meeting, the recommendation was made to invest in the project. The basis for this suggestion was that the investment would facilitate an increase in the companys efficiency. Furthermore, it would help to improve FCLs image and so render the company to obtain more contracts and thus increase its revenues. Introduction commit in a project is not a simple matter. It involves an assessment of different options. If the project relates to an summation for a new idea, this requires consideration of a number of different options which are completely new to the organization. However, if it involves a new piece of equipment to re place an existing champion, it requires consideration of the equipment in use compared to the alternative. FCL is considering whether to replace an old extend which has five (5) years left to be put out of commission with a new ALII Crane. The ALII would allow the company to get additional opportunities in the market which the old crane would not be equal to facilitate. It would also be able to produce items faster which mean a faster turnaround time and less production backlog for the company. Purchasing a new piece of equipment normally involves a vauntingly capital out tend and so the companys ability to obtain funds is normally one of the main considerations. However, since financing the project is not a challenge, the focus here is not on obtaining funds to finance it. Some of the things to be considered include notes full stop and the ability of the company to generate overflowing revenue to make a clear or to break-even with this investment. Additionally, the project needs to be appraised to regulate whether the investment will generate the required returns. The project will be assessed in terms of its net empower value (NPV) over the ten year period, the payback period and the projects internal rate of return (IRR). Break-even analysis It is important to consider the ability of the company to generate the volume of sales necessary to break-even. The breakeven tear down is the point at which the company neither makes a profit nor a loss (BPP 2011 Horngren et al. 2000). This is a measure that is often used to measure risk in a billet (Singh and Deshpande 1982). The ability to generate a profit or to break-even is not the only important issue and so the timing of FCLs exchange flow is also of paramount importance. Cash Flows A projects cash flow is very important. In order to determine the feasibility of the investment the cash flows will have to be evaluated (Emory et al. 2007 Titman et al. 2011). In fact, Popescu (2008) indicates that ca sh is the lifeblood of a business therefore, it is important for the people who are placed in authority to pay special attention to cash inflows and outflows and their timing. Cash will flow inwards from sales revenue while cash will flow outwards to pay for expenses that will be incurred on the project. The focus should be on incremental cash flows that are generated from the use of the