Discuss About The Investment Appraisal Energy Storage Systems?
From the overall evaluation of the calculation mentioned in question 1, adequate NPV and IRR of the project would be identified. The relevant NPV of the project is mainly calculated at $2,664,256.18, while the IRR is mainly at 61%. This directly portrays a highly stable project, which could provide higher returns investment. Relevant cash flow is mainly identified by deriving the total sales anticipated for the project, which directly help detecting the overall cash flow. The total sales are subtracted by the raw material cost included on both new product and contract manufacturing. On the other hand, Almarri and Blackwell (2014) argued that the overall viability of the project mainly reduced, when the relevant assumption of inflation or cost of capital is wrong, which directly increases the risk from investment. This overall detection of the raw material cost is mainly helpful in identifying the overall expenses incurred in deriving the gross profit (Locatelli, Invernizzi and Mancini 2016). However, the operating income that is identified from the operation that every positive, which would help in subtracting all the relevant administrative expenses. The relevant administrative expenses directly help in detecting the overall expenses incurred from operations. Hence, after the derivation of the net profit relevant cash flow is detected after adding the deprecation value, which is used in reducing the tax expenses. Baum and Crosby (2014) mentioned that overall derivation of the investment appraisal techniques directly help companies to identify the viable options, which could improve profitability and return from investment.
The second evaluation on the project is mainly identified by deducting the overall income and expenditure conducted on contract manufacturing sales. This relevant deduction of the contract manufacturing sales mainly helps in identifying viability of the new product in providing sustainable returns from investment (Eliasson and Börjesson 2014). The valuation of the NPV and IRR without contract manufacturing sales is mainly essential for deriving the viability of the new product. The NPV of the new product is mainly calculated at $1,741,375.61, while the IRR is detected at 46%. This mainly helps in identifying relevant viability of the new product in providing higher returns from investment in near future. This relevant detection of the viability of the new project could directly help the organisation to adequately support the investment option, which might increase firm value in future.
Therefore, it is recommended that the organisation commences with the project, as it might help in improving the overall return from investment. Furthermore, the project could also help in generating relevant income that could support future operation of the organisation. Positive NPV and IRR is the main reason for selecting the project, as it might generate higher revenue in future (Gotze, Northcott and Schuster 2016). The overall detection of the demand of the product, which is to be evaluated thoroughly by the organisation, as any reduction in revenue could invalidate the project. The second analysis that needs to be conducted is the derivation of cost of capital, which is detected at 15%. This derivation of the cost of capital also allows the organisation to calculate the NPV and detect viability of the project. The current market condition of the product also needs to be evaluated by the organisation, as it might help in detecting viability of the project and demand among potential customers (Hirschi and Selvin 2017).
Almarri, K. and Blackwell, P., 2014. Improving risk sharing and investment appraisal for PPP procurement success in large green projects. Procedia-Social and Behavioral Sciences, 119, pp.847-856.
Baum, A.E. and Crosby, N., 2014. Property investment appraisal. John Wiley & So
Eliasson, J. and Börjesson, M., 2014. On timetable assumptions in railway investment appraisal. Transport Policy, 36, pp.118-126.
Gotze, U., Northcott, D. and Schuster, P., 2016. INVESTMENT APPRAISAL. SPRINGER-VERLAG BERLIN AN.
Hirschi, T. and Selvin, H.C., 2017. Delinquency research: An appraisal of analytic methods. Routledge.
Locatelli, G., Invernizzi, D.C. and Mancini, M., 2016. Investment and risk appraisal in energy storage systems: A real options approach. Energy, 104, pp.114-131.
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