Evaluation Of A Proposed Project For Organic Farm Foods PLC

Analysis

The assessment aims in evaluating the overall proposed project for Organic Farm Foods PLC, which can eventually help the organization to improve the level of income in the long run. The project has been evaluated on the basis of investment appraisal techniques such as NET present value and payback period. Both the measures have relatively helped in detecting the level of security and income that the proposed project and deliver to Organic Farm Foods Plc. The project has been evaluated on the different circumstances to identify different levels of income and expenses that will be incurred by the company. This measure has a relatively help in detecting the net cash flow of the organization. The impact of exchange rate is also elaborated to detect the level of income that will be generated by the company after converting Euros into pounds. Sensitivity analysis has also been conducted to detect the level of changes in payback period, net present value and ROCE Of the proposed project. The sensitivity analysis is relatively conducted on the alterations of expenses such as labor cost and the changes in currency conversion rate. Both the scenarios is relatively sensitive and can alter the overall income of the organization.

The above table relatively presents the overall income, expenses and other alterations of the project, which can eventually help in detecting the actual net cash flow of the proposed project. The above table directly calculates the required rate of return the help of Government Bonds, beta of the organization, and market Returns. Hence, the organization is able to calculate the required return of the project by using adequate expected return method. This is relatively calculated the overall required return at levels of 7.09%, which will be used for discounting the future cash flows of the proposed project. There is relevant data regarding the different cost and income that is affecting the overall income of the project. The overall incremental sales of the project is relatively calculated at 20%,while incremental variable, labor cost is at 3% and fixed cost is calculated at 2%.These values has been relatively used in calculating the overall net cash flow of the organization during the period of 10 years. Baum & Crosby (2014) mentioned that with the help of investment appraisal techniques organizations are able to evaluate the proposed project and detect whether it could generate income and increase firm value in future or hamper the investment capital.

Adequate depreciation values have been used for reducing the overall taxes that has entered by the organization in the proposed project. This has relatively raised the level of net cash inflow of the proposed project during the tenure of 10 years. The incremental income and expenses of project is adequately imposed in the above table to derive the relevant net cash flows of the project during the 10-fiscal year. This would eventually help in understanding the level of income and net cash flows that will be generated by the proposed project during its lifetime. Sims, Powell & Vidgen (2015) argued that investment appraisal techniques relatively lose their friction when the calculations are not conducted adequately, which directly hampers the level of income that could be generated from an investment.

The above tables relatively represent the overall estimated cash flow of the project after converting the Euros into pounds. This has a relatively help in detecting the level of income that could be generated from investment in terms of home currency of the company. The overall exchange rate that has been used for calculation purpose is at the levels of 1.21, which directly indicates that 1 GBP will provide 1.21 Euros to the organization. This calculation can be used for relatively reversing the overall Euro income to GBP, which is relatively calculated at the levels of 0.82645. Hence, the calculation can eventually help in deriving the overall income in GBP of the proposed project, which can help in detecting the level of income that could be generated from the investment. Hicks (2017) indicated that organizations conducting currency conversion method needs to adopt adequate hedging measures for minimizing the risk from currency conversion and maximizing the level of income that could be converted to their home currency.

The overall estimated cash flow GBP is a relatively adequate for the organization, as it continuously increases over the period of time. This displays the positive attributes of the proposed project in contributing to the rising revenues of the organization. Moreover, the success of the organization is relatively charged in two different countries, which is essential for contemplating with the laws and regulations of the countries. The first tax rate is relatively at Ireland and is calculated at all levels of 12.5%, while the other tax rate is from UK, which is at the levels of 19%. The tax rate calculated for Island is relatively at the levels of 12.5%, while the UK tax rate is at 7.5%. This has been derived by subtracting the UK tax rate with the original Ireland tax rate. With the help of adequate regulations, the companies operating in two different countries are not double taxed, which eventually help the organization to improve their operations and minimize the excessive of cash outflow (Li & Trutnevyte, 2017).

Currency conversion method is mainly considered to be one of the major problems, which is affecting the multinational companies, as their revenue might be reduced due to the volatility in the currency market. Hence, organization needs to b use adequate measure for curbing the losses in the currency market and maximining the values of the currency converted. Therefore, the organization might eventually consider the currency conversion method for detecting the level of income that can be generated from an investment. Therefore, the organization using the investment appraisal technique can eventually utilize the currency conversion method for detecting the level of cash inflows that can be generated from a proposed investment.

The overall use of Net present values has been conducted in the calculation, which eventually allow the organisation to detect the viable investment option. the net present values directly use the discounting method, where time values of money are used for detecting the present value of future cash flows. This method eventually allows the investors to detect the level of extra income that will be generated from an investment over the period of time with the adequate initial capital is being investment. Furthermore, the investors also use the method for comprising the investment options, which can eventually help in improving the level of income in the long run. The calculations have also used payback period method for detecting the level of time cash inflows take to cover the overall initial investment. This derivation directly allows the organisation to detect whether an investment can provide the required level of cash flows to collect the investor as quickly as possible. The payback period method is widely used by company to detect the copiability of the investors for reducing the initial capital, which can be used in another investments. The managers mainly use the method for detecting the most efficient investments, which can provide the relevant cash inflows to reduce the blockage of initial investment and acquire additional investments.

The above table relatively represents the overall investment appraisal techniques that have been used for evaluating the proposed project. The cash flow relevantly indicates the normal, favorable, and unfavorable terms of the proposed project, which could alter estimated cash flow. The overall estimated cost has been calculated by utilizing the probability conditions and deriving the total income that could be generated under different circumstances. This probability conditions has relatively helped in deriving the overall estimated cash flow of the project, which can be used for evaluation purposes. The accumulated cash flow has been used for summing up the incomes of previous year with the current year to determine the total cash flow that has been generated by the project. This relevantly allows the organization to determine whether the project has a positive cumulative cash flow of the project. Higham, Fortune & Boothman (2016) mentioned that with the help of probability conditions the organization is able to detect the different levels and streams of income that could be generated from a project and allow the management to make adequate investment decisions.

The calculation has been relatively conducted for deriving the overall net present value of the project, which is at the levels of £ 292,735. This calculation is derived by using the present value factor and overall estimated cash flow of the project. Furthermore, ROCE of the project is relatively at the levels of 1.04 while the payback period is at 8.85 years. The values of the project has a relatively indicated a positive attribute, which can be used by the organization to increase their overall in coming future. Throsby (2016) argued that investment appraisal techniques needs to be conducted on adequate assumptions, taking wrong assumption would hamper the results and nullify the decisions that might be made by the organization.

The above figure indicates the cash flow in different scenario of the proposed project, which can eventually help your organization need adequate investment decisions. the calculation has a relatively help in detecting favorable trading terms, unfavorable trading terms and overall estimated cash flow of the project. Estimation has relatively help in providing visual confirmation for the organization to understand the level of minimum income that could be generated from the project.

Sensitivity Analysis for labor cost:

The above table and graph relatively represent the overall sensitivity analysis for the labor cost, which can eventually help in deriving the level of changes in payback period and net present value of the organization. From the overall sensitive and should be understood that the rising values of labor cost would eventually raise the level of Payback period and reduced the net present value of the proposed project. This relatively indicates that the rising cost factor of labor would eventually hamper the level of income that could be generated from the project over the period of time. The sensitivity analysis relatively indicates and shows the organization the level of profitability and net present value of the relevant project if the changes in labor cost of caused due to some incidents. Hence, from the evaluation it can be understood that the proposed project will be selected for investment purposes, as both the net present value and payback Period of the project is relatively Adequate and falls under the investment scope (Bennett & James, 2017).

Sensitivity Analysis for currency conversion:

Adequate sensitivity analysis is conducted on the currency conversion value, which would eventually alter the level of changes in the payback period, and net present value. The calculation directly indicates that the relevant currency conversion rate would eventually increase the level of Payback period, while it reduces the net present value of the project. The significant alteration in the overall currency conversion rate would not affect the payback period and net present value of the proposed project. The sensitivity analysis relatively helps in detecting the level of opportunity and problems that can be incurred by the organization in implementing the project. From the valuation it can be understood that both the currency conversion rate and labor cost would not negatively affect the NPV value, which will  relatively make the proposed investment project an adequate investment opportunity (Awojobi & Jenkins, 2016).

The use of sensitivity analysis directly allows the investors to detect the level cash flows, which can be generated from an investment over the period of time. This method allows the investor to understand the level of income, which can be generated from investment, while reducing the risk attributes. The sensitivity analysis relevantly checks certain attributes of the proposed project for detecting the level of changes in income, which can be conducted from the investment. This analysis directly allows the organization to detect extreme and favorable positions in which the project might alter over its life time. This analysis provides the organization with the overall alternations in the income, which can be generated from an investment over the period of time and impact the firm value. Hence, the sensitivity analysis allows the organization to gauge into the abyss and detect the implications of negative and positive impact on the project return generation capability. Thus, the organization could eventually utilize the level of cash inflows that can be generated from an investment over the period of time.

Conclusion:

The assessment evaluates the project of Organic Farm Foods PLC with the help of adequate investment appraisal techniques such as net present value and payback period. This technique has relatively helped in detecting the level of income that can be generated from the project over the period of time. From the evaluation can be understood that the proposed project is a viable option that can be utilized by Organic Farm Foods PLC for increasing the income in future. For the movie sensitivity analysis also provide positive attributes of the project no negative NPV and payback period has been detected. Thus, it could be understood that the overall investment in the project can be conducted by the organization for improving the level of return over the period of investment.

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