BUSINESS PROPOSAL

Business Proposal



Business Proposal

Introduction

Technology has changed the entire operation of the company mostly in enhancing the profit and reducing the cost at the same time. In order to take discussion regarding the investment perspective, manager has to do a deep analysis which focused on increased profit, decreased costs, increased customer base, increased customer satisfaction, increased efficiency of current operations and increased capacity for future operations. Along with this, he has to keep the quality of the product good, as well. In this paper, we will propose a proposal in which a suggestion will be given to the company in order to go for a substantial investment in advance technology.

Discussion

The company which is selected to advice to switch to newer technology is food manufacturing company who is using machines which requires human affords. However, the human cost has been increase more than 50% from last year and company cannot afford to hire more expensive human resources due to their limited budget (www.rdi-usa.com). The following machine has been recommended which will reduce the cost and increase the profit of the company.

Cost Structure: it is assumed that the machine will produce the following cash flow with the production.

Advanced Brain Machine

Cash Flows

Annuity @10%

 Total

 

6,500.00

0.90909091

5909.091

 

5,500.00

0.82644628

4545.455

 

3,500.00

0.7513148

2629.602

 

1,500.00

0.68301346

1024.52

 

2,500.00

0.62092132

1552.303

 

15660.97

 

cost

12000

 

NPV

 

3660.97

PP

2 Year

It is recommended the above mention option for our client is best. For the purpose of discounted cash flow we have chosen NPV (Net Present Value

NPV= Initial investment - CF/ (1/r) ^1 +- CF/ (1/r) ^2 +- CF/ (1/r) ^3 +- CF/ (1/r) ^n

And for Non- Discount Cash Flow we will calculate Payback period

PP= (Cost of Project/Annual Cash Inflows)

The reason for selecting Advanced Brain Machine is due to the higher value in terms of Net present value which is 3660.97 whereas old machine showing lower value than this within 1st year. Moreover, the Payback Period is also lower than other best Brain computer option. As we know that the NPV (Net Present Value) is very important for the valuation of investments in fixed assets, despite its limitations in unforeseen or exceptional circumstances consider market (Harris, 1995).

If its value is greater than zero, the project is profitable, considering the minimum value for investment performance. Company usually compares different alternatives to see if a project is better or worse. Usually the alternative with the highest NPV is usually the best for the institution, but need not always be so. There are times when a company chooses a project with a lower NPV due to various reasons such as might be the image that you bring to the company, whether for strategic or other reasons at the time of interest to this entity. You can also consider the interpretation of NPV, depending on value creation for the company:

i)If the NPV of a project is positive, the project creates value.

ii)If the NPV of a project is negative, the project destroys value.

iii)If the NPV of a project is zero, the project does not create or destroy value.

Moreover, the cash flow to equity is calculated as: Net Income for the period n + ...