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Topic:

William's pharmaceutical cost of finance

Essay Instructions:

Module 05 - Case Assignment

The management at William’s Pharmaceutical is considering new computers and equipment to manage inventory and to expedite online orders and product shipment. The investment will be $100,000 and the cost of capital is 15%. The company earned $500,000 in sales last year and anticipates the new equipment could increase sales by $50,000 in the first year, $60,000 in the second and third years, and $70,000 in the fourth and fifth years.

Assignment

Write a recommendation based on your understanding of capital budgeting. Include an interpretation of the following

  • Based on the discounted payback period, would the investment produce a profit within five years?
  • Calculate the NPV, the IRR, and profitability index (PI) for the project
  • Use your calculations to make recommendations concerning the potential profitability of this investment.  

Length: 2-3 pages typed and double-spaced

Precision (Excellent; Good; Average; Poor)    

  • Each question and or assignment requirement is addressed in the paper
  • Accuracy of your answers, key points and supporting discussion

Clarity (Excellent; Good; Average; Poor) 

  • The paper is well organized, concise, reads clearly, and it is not confusing.

Breadth (Excellent; Good; Average; Poor) 

  • The paper presents appropriate breadth covering the assignment questions/requirements

Depth (Excellent; Good; Average; Poor) 

  • Presents key points that lead to deeper matters and issues
  • Integrates several points into coherent conclusions

Critical Thinking (Excellent; Good; Average; Poor) 

  • The paper demonstrates good understanding and synthesis of the module background material
  • Logically incorporates key concepts presented in the background material into the overall analyses, key points and supporting discussions
  • Presents well-reasoned conclusions and position as well as convincing arguments in support of the same    

Writing Mechanics 

  • Grammar (Excellent; Good; Average; Poor)
  • Spelling (Excellent; Good; Average; Poor)
  • Vocabulary (Excellent; Good; Average; Poor)
  • Referencing (Excellent; Good; Average; Poor)

 Additional considerations to keep in mind while working on your case assignments:

Originality and Use of directly quoted material 

  • The purpose of each assignment is for you to present your understanding and synthesis of the background material and key concepts.  Accordingly, this must be accomplished substantially in your own words. 
  • Use directly quoted material sparingly and only when preserving the exact words of an author is necessary.  For purposes of this course, rarely should directly quoted material represent more than 5-10 percent of your entire case paper’s content.  Composing a paper patched together from mostly quoted material is not acceptable. 
  • Be sure to properly reference all directly quoted material and include the in-text citations. All paraphrased information also requires reference citations at the end of the paraphrased section.

Grades

  • A paper that answers all assignments questions and supports the same with good key points, well supported discussions and quality references will earn a solid “B” grade.     
  • Please remember that “A” papers are exceptional works that go beyond just answering the questions and provide insightful answers.
Essay Sample Content Preview:

William’s pharmaceutical cost of finance
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Since, most projects tend to occur over a period extending more than one year, it is vital to use discounted cash flows rather than normal regular flows. Thus, use of discounted cash flows takes into account the time value of money through discounting ( Marney & Tarbert, 2011). The discounted payback period is 2 years + [-11,154]/ 39, 450 which is 2. 28 years. This project is acceptable as the time to recover $ 100, 000 the initial investment is less than the threshold level of five years. Furthermore, investment in computers and equipment is not a risky venture as the time required for investment recovery is only 2.28 years.
cost of facilityinflowsdiscounted cash flow cumulative DCFnow/ today($100,000)($100,000)-100,000-100,000year 150,00043480-56,520year 2$60,000 $45,366 ($11,154)year 3$60,000 $39,450 $28,296 year 4$70,000 $40,026 year 5$70,000.00 $34,804.00 NPV$103,122.95 total inflows$203,122.95 IRR51%PI PAYBACK PERIOD 2.28
The net present value (NPV) has a positive value of $203,122.95, and this measure compares the present value of cash flows and cash out flows over time including the initial cost of investment. Similar to other techniques that use discounting, it is consistent with shareholder wealth maximization for listed companies and value addition (Baker & Powell, 2005). Thus, this technique is essential for estimating value of projects, and through better estimation techniques it will be possible to predict future cash flows. Since the NPV is positive the management should accept the project. The cost of capital can also be an indicator of the riskiness of the project in comparison to others. Projects w...
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