CORPORATE FINANCE ANALYSIS

Corporate Finance & Quantitative Analysis



Corporate Finance & Quantitative Analysis

Introduction

Investment appraisal is an important aspect when making investment decision. This is important due to protect investment through avoiding risk and availing maximum investment return. There are different investment techniques available on basis of which company evaluate their project. This paper will have two sections where one section will focus case study i.e. feasibility of the project and other will focus on the general concept and their calculation.

Discussion

Section 1)

Overview of the Company

Katbuddys Confectionaries is a company that produces a large range of chocolates and their intention is to diversify their business activities through the investment in Theme park business. This project would be a mixture of family activities and thrills. Katbuddys Confectionaries has spent £400,000 amount on market research regarding theme park and the result they obtain was much encouraging which made them to further analyze the project and its returns.

The main objective of this study is to advice Katbuddys whether the investment in this project is profitable or not and whether the diversification from their core business would result positive or not. For this purpose, the report that will be provided to Katbuddys will comprises of Theme park NPV calculation, Decision making and sensitivity analysis. These are selected since they provide a clear picture of the project profitability and return. Beside this, this part also provides with the financial and non-financial issues that Katbuddys Confectionaries will require for evaluation as well as diverse real choices which will permit for modification of the project.

Evaluation of Projection - Theme Park

Net present Value

A net present value is an investment technique which is mostly use while evaluating a project since it indicates the present value of future projects. In order to calculate NPV of the project, it is obtained through summing up the present value of expected cash flows that project is producing. This Present value is obtained through dividing the cash flows from the discount rate which is usually calculated through WACC (Damodaran, 2011, pp. 182).

As it is the basic technique for cash budgeting and the Katbuddys Confectionaries case will assist in determining and understanding the decision making process as well as how capital budgeting will influence the decision making. In this section, calculation for NPV of the theme park has been shown with the key assumptions.

Key Assumption

Duration of the Project

The project duration is five years and project has been analyzed for these years.



Sunk cost - Market Research cost

The expense for market research was 400000 pounds and this expense has been treated as sunk cost. This expense has not been taken into the consideration while calculating NPV since this expense has already been incurred by the company and such is termed as irreversible out-flows. As we know that such cost are pass cost, they have no impact on the acceptance and rejection of the project and thus these cost are usually do not consider while making ...