The discussion with Mary regards the projected Apix expansion project. From our discussion I was able to deduce the important variables in conducting a financial analysis. I calculated the project’s Net Present Value (NPV) and Internal Rate of Return (IRR). Mary referred me to information collected by our audit firm and it assisted in the determination of cash outflows and cash inflows.
NPV assists in determining the present value of a future project. NPV is considerate of the fact that the future value of money may not be the same as the present value due to inflation (Bora, 2015). As such, it is important that we value the viability of the expansion project with that in mind. I calculated the NPV of the project for each of the five years that had been projected. The solutions aided in the calculation of the IRR.
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The IRR, expressed as a percentage, is a financial metric that measures the potential of profitability for an investment (Zorn et al., 2018). In this case, the IRR is 22.19%. This means that the investors will be rewarded with returns worth 22.19% of their investment after the five years of operation. As such, the Apix expansion project is a worthy investment. The IRR for different projects are compared and the one with the highest is carried out. In this case, there is no competing project, and since the rewards are considerable given that it is more than zero, the project should be implemented.
References
Bora, B. (2015). Comparison between net present value and internal rate of return. International Journal of Research in Finance and Marketing , 5 (12), 61-71.
Zorn, A., Esteves, M., Baur, I., & Lips, M. (2018). Financial Ratios as Indicators of Economic Sustainability: A Quantitative Analysis for Swiss Dairy Farms. Sustainability , 10 (8), 2942.
