AC 505 - Project B conclusion - against purchase from the...

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CONCLUSION Based on my findings after completing the financial evaluation of the proposal of Clark Paints, whether to produce paint cans or buy directly from the market, I suggest that it would be financially beneficial for Clark Paints to produce paint cans instead of buying. Following are the various factors that were considered during my evaluation and are reflected in my conclusion. 1) There will be net cash savings (over purchase of cans) in all the 5 years of operation if Clark produces cans and the payback period is 3.4 years, which is generally acceptable. 2) Annual rate of return of the decision to produce cans is 13.18%, which is above the expected rate of return of 12%. 3) There is a positive net present value of $33,035. A proposal with a positive net present value is an acceptable proposal. So, the decision to produce the cans as
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Unformatted text preview: against purchase from the market will definitely increase the shareholder value. 4) Internal rate of return according to the Excel function is 18%, which is also above the required rate of return. 5) There are nonfinancial factors such as better quality control; delivery control, reliability etc. will also contribute to the benefit of the company. So, I hereby recommend Clark Paints to produce paint cans instead of buying from the market. Note: • Annual cash flows over the expected life of the equipment = $58,351.00 • Payback period = 3.4 years • Annual rate of return = 13.18% • Net present value = $33,035 • Internal rate of return = 18% ( According to Excel IRR function)...
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AC 505 - Project B conclusion - against purchase from the...

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