Project 4: Report to Management Template

Project 4 Feedback

REPORT TO MANAGEMENT

· In the statement “In light of total of present value for a period of five years as time: NPV of the buy: - 4000000+958079 = - 3041921; bringing about a negative NPV, which recommends the processing plant or factory should have not been obtained.” the following applies:

· This calculation is wrong, the PV should be used in this calculation, not the NPV. This calculation is inconsistent with the concept of NPV, as the original investment was already considered with the NPV calculation. If anything, the full PV 4,068,670 should be used in this calculation. Do not base the recommendation of whether to buy the factory based solely on the after-tax cash flow, it is just another indicator and does not override the NPV. This is in direct contradiction of the NPV concept

· The complexity in net present value calculation due to taxes arises from the simple fact that capital budgeting decisions are based on cash flows while income tax is calculated on net income. Net cash flows are different from net income because some expenses are non-cash such as depreciation, etc.

· Questions on the Corporate Valuation tab were not addressed in the report

· The results of the annuity calculations were not specified.

· Recommendations were not clear.