Project Analysis

The company is planning to undertake a new project with a life of 4 years whose projections with
variances are explained here under.
Profitability is the key element to pursue a project. The analysis this project & its scenarios is based on
Net Present value (NPV) of cash flows using the discount rate of 10%.
 If the project is undertaken it is expected to yield a cash flow of $6376880.
 In either situation of 10% decline in volume or 10% increase in variable cost, the cash flows
comes down to $5522600 which is in variance with the original projections by 13.4%
 The increase in fixed cost slightly crumbles the proceeds to $6299210, which results in a
variance of 1.22%.
 In case the company experiences a downfall of 10% in Sales Price, it will erode a huge chunk of
revenue which in turn brings down the NPV to $4668320 resulting in variance of 26.7%

NPV ($) Variance ($) Variance %

Projected 6376880 - -
Scenario 1 5522660 854220 13.40%
Scenario 2 4668320 1708560 26.79%
Scenario 3 5522660 854220 13.40%
Scenario 4 6299210 77670 1.22%

The numbers presented shows even so the project has a positive Net Present Value and is viable in every
adverse situation presented, it will witness highest cash proceeds with the original projections.
To make it most profitable, the sales price should remain intact, as a decline in Selling price will most
weaken the Net Present Value. We have to see to it that our marketing team ensures that customers
understands as how our price is most justified and going forward no competitive product affects our
pricing.
A close check on variable cost will further ensure the ultimate results to match with the projected ones.
Also contracts for purchase of raw material should be in place to secure against the increase in variable
cost.
For most effective result, the volume of sales has to be in par with projections. We have to effectively
utilize our marketing & distribution channels in order to have our product reach the targeted buyers in
right geography to facilitate the forecasted sales.
To attain the forecasted results, the respective company departments needs to employee resources/
contracts/ right marketing and distribution channels to control the variances. Company can spend a little
extra on the cash fixed cost, if needed as some extra spending in this head will slightly influence the cash
flow output but will hugely check the unfavorable changes in other heads.

This Project should go on as it will yield huge profits to the company. With support from all the
departments it is capable of achieving the highest returns possible.