Finance principles Essay Example | Topics and Well Written Essays - 1750 words

Finance principles - Essay Example The company held a meeting to discuss the launch of its new product and the top management discussed in detail about the cash flow analysis and projections of the liquid detergent. The Chief Financial Officer, Mr. Mc Donald presented a report in a meeting which included the cash flow projections for the new project. He was planning to purchase specialized equipment and production facilities from Donnalley limited. Mr. Gasper, the production manager, inquired the CFO that why wasn’t he purchasing the equipment from Danforth limited. Being the financial analyst, I will analyze the purchase of equipment and facilities from Donnalley as well as Danforth limited if the company was planning to go with the project. If the company will buy specialized equipment from Donnalley limited, then it is expected to have increased net cash flows for the project. For the first four years, company will be able to get increased cash flows of $580000. While for the next three years, company is hopeful to receive higher cash flows of $650000. However, the company will get net cash flows of $550000 for the remaining four years of the project. There will be reducing depreciation on the specialized equipments of the company which are shown in table 1. The Radiant limited will experience loss in sales revenue from the existing product lines during the term of the project. The EBIT and NOPAT are calculated for each year in the table 1. Following are the formulae for the calculations of EBIT, NOPAT and free cash flows. In the fifth year, there was a need to purchase additional production facilities to meet up the growing demand of the detergents. The company will invest $5000000 to continue operations and production of detergents. The terminal cash flows are also calculated to come up with the free cash flows of the last year of the project. Let us suppose that the company can also purchase the plant, equipment and facilities from Danforth limited for launching a new