Perform a financial analysis for a project using the format provided in the format provided in the figure 4.3. assume the projected cost and benefits for this projects are spread over four years as follows:estimated cost are $100000 in year1 and $25000 each upcoming years. Use an 8% discount rate. Create the spreadsheet and calculate clearly NPV,ROI and PBP. In addition write a paragraph explaining whether you would recommend investing in this project, based on your financial analysis.
According to the calculations done,
The NPV came to be $38850 which denotes that the net present value is positive and there is a gain in the project. This means that the return from the project exceeds the cost of project. Usually the project with the higher NPV is selected rather than the project with the least NPV. Here in this case there is only one project therefore the we just need to analyze whether the NPV is positive or higher.
The Pay back period for the project is about three years it means that the project will take about three years to recoup. But for the information technology project it is said that they should have the payback period of about 1 year because of the rapid pace of changing business and technology. There are many organizations that cannot achieve the payback within 1 year but it does not mean that the project cannot go. Instead there is a need to understand the organizations financial expectation for project.
Return on Investment for this project shows the positive nature of the job project. ROI is 26% that means that the revenue generated from this project is 26%. hence the project can be recommended.
Thus looking at all these three methods of selecting projects. Two of them are in favor of the project and the PBP is quite uncertain. The investment on the project can be done inspite of the PBP for the project is 3 yrs.
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