Table of Contents

1. Executive Summary.............................................................................................................................3
2. Terms of References............................................................................................................................4
3. Analysis................................................................................................................................................5
3.1. Analysis of findings......................................................................................................................5
3.1.1. Original scenario..................................................................................................................5
3.1.2. Change in Cost of Capital.....................................................................................................5
3.1.2.1. Cost of Capital @ 12%..................................................................................................5
3.1.2.2. Cost of Capital @ 8%....................................................................................................6
3.1.3. Change in Length.................................................................................................................6
3.1.3.1. Project length of 5 years..............................................................................................6
3.1.3.2. Project length of 3 years..............................................................................................7
3.2. Non – Financial Consideration.....................................................................................................8
3.2.1. Political and legal aspects....................................................................................................8
3.2.2. Economic Factor..................................................................................................................8
3.2.3. Environmental Aspect..........................................................................................................9
3.2.4. Social Aspects......................................................................................................................9
3.2.5. Technological Aspect...........................................................................................................9
3.3. Ways of the dealing with the risk...............................................................................................10
4. Recommendations.............................................................................................................................11
5. Appendices........................................................................................................................................12
6. Reference..........................................................................................................................................17
 1. Executive Summary.

This report evaluates the results and findings of the project “WOXIDE”. The main intention of
this project is to reduce the wastage and so does cause a higher cost due to its short life of raw
materials. Production of “WOXIDE” will use the raw materials that are currently being used in
the production process for other products.

This project has been mainly evaluated using through the financial aspect; being more specific
through the Net Present Value (NPV). The NPV of “WOXIDE” shows a value of Rs.

Moreover, I as a Finance Director also dud??? a sensitivity analysis based on the values we
received as results????.
 2. Terms of References

This report purpose is to evaluate whether the ElECTEXTRA should undertake?extend the
project WOXIDE.
 3. Analysis

3.1. Analysis of findings

3.1.1. Original scenario

Project Woxide is a newly developed project that can minimize the wastage of raw materials and
reduce costs,. Tthereby ElectExtra Ltd maximizes the profit ultimately, maximizing the wealth of
shareholders. According to appendices 1 and 5, the net present value (NPV) is negative(-) £
22,774. In the original scenario, the Cost of capital and lifetime of the project is considered as
10% and 4 years, respectively. However, there is uncertainty in all the figures since all raw
material values are estimated, . A and there is no similar project that can be compared with.
Moreover, provided information is not enough to make a decision.

Even though this project has a negative NPV figure, ElectExtra Ltd should not reject this at once
since company management is considering the production of Woxide may reduce the wastage of
raw material after adjustments of cash flow. Because of that, sensitivity analysis must be
performed to get more information and make an informed make an accurate decision on whether
this project must be completely rejected or approve after the adjustments since it has a negative
NPV.

3.1.2. Change in Cost of Capital.

If the cost of capital changed, the NPV of the original scenario automatically changed because
the cost of capital is an affectsed the outcome of the variable to NPV.

3.1.2.1. Cost of Capital @ 12%.

When the cost of capital is increased from 10% to  12%, the NPV is increased from (-) -£
22,774 to (-) -£ 18,587 according to appendices 2. NPV hasis increased by £ 4,187 or
18.381% increment. It shows that if the cost of capital is increasesd by 2%, the NPV increasesd
by £ 4,187.

When cost of capital increased by 2%, it represents total increment of 20% from original
scenario. This indicates, when cost of capital increased by 1%, NPV will increased by 0.919%.
Hence proved the increment of cost of capital is not very sensitive to the NPV of costs.
 3.1.2.2. Cost of Capital at@ 8%.

When the cost of capital is decreasesd from 10% to 8%, the NPV is decreasesd from (-) -£
22,774 to  (-) -£ 27,652 according to appendices 3. The NPV is decreased by £ 4,878 or
21.419% decrement. It indicates that if the cost of capital is decreasesd by 2%, the NPV
decreased by £ 4,878.

When the cost of capital decreased by 2%, it represents total decrement of 20% from original
scenario. This indicates, when cost of capital decreased by 1%, the NPV will decreased by
1.071%. Hence proved the decrement of the cost of capital is not very sensitive to the NPV of
costs.

In general, if the cost of capital increases, NPV would decrease. But in this scenario, when the
cost of capital increases, NPV also increases. It is the opposite side of the general situation. NPV
got a negative figure in the original scenario was the cause for this abnormality.

3.1.3. Change in Length.

If the length of project changed, the NPV of the original scenario automatically changed because
the lifetime of the project is an affectesd the outcome of the variable to NPV.

3.1.3.1. Project length of 5 years

When the length of the project is increasesd from 4 years to  5 years, the NPV is decreasesd
from (-) -£ 22,774 to (-) -£ 150,600 according to appendices 6. The NPV is decreased by £
127,826 or 561.44% decrement. This It shows that if the length of the project is increasesd by 1
year, the NPV decreased by £ 127,826.

Therefore we can conclude that Wwhen the length of the project is increased by 1 year, it
represents a total increment of 25% from original scenario. This indicates, when the length of the
project increasesd by 1%, the NPV will decreasesd by 22.46%. Hence this indicate that proved
the increment of the length of the project is very sensitive to the NPV of costs.
 3.1.3.2. Project length of 3 years

When the length of the project is decreasesd from 4 years to 3 years, the NPV is increasesd
from (-) -£ 22,774 to £ 108,967 according to appendices 7. The NPV is increased by £ 86,193
or 378.47% increment. This It shows that if the length of the project is decreased by 1 year, the
NPV increased by £ 86,193.

When the length of the project is decreased by 1 year, it represents total decrement of 25% from
original scenario. This indicates, when the length of the project decreased by 1%, NPV will
increased by 15.14%. Hence proved the decrement of the length of the project is very sensitive to
the NPV of costs.

In general, if the length of the project increases, NPV would increase. But in this scenario, when
the length of the project increases, NPV decreases. It is the opposite side of the general situation.
NPV got a negative figure in the original scenario was the cause for this abnormality.

In conclusion, ElectExtra Ltd should not reject this project at original scenario. Because when
the Woxide project has reduce its lifetime from 1 year, it gets positive NPV figure. So ElectExtra
Ltd can adjust the lifetime of this project as 3 years and continue the project.
 3.2. Non – Financial Consideration.

In this report we analyzed the financial aspects for identify how the changes are affect the
primary cost of this product. But in this situation, we can‘t makes a decision only with this
financial analysis. So, we want to analyze the non-financial aspects for make an accurate
decision. Here we are considered about the non-financial factors clearly so we can get accurate
decision about this problem as well.

3.2.1. Political and legal aspects

If we consider about the political and legal side, we want to make sure about is that the Woxide
production is approved by the government. If it is approved by the government, we want to make
sure the level of the ingredients will be approved by the government. So, we want to make the
procedures forget an approval from ECHA (European Chemical Agencies). Then only we can
start the production of this Woxide.

Then we want to make sure that our electronic wastages and the chemical wastages are not
harmful for peoples when we dispose them. Because the chemical disposing is most prohibited
thing in UK. So, we must plan how we dispose the chemicals and the electronic wastages, and
we must make an approval according to the UK legal system.

3.2.2. Economic Factor

In this economic factor we want to know the accurate financial changes when we produce the
Woxide. Because we are making more costs for our Woxide production. So, we know that our
production costs are now high. But by this research we trust that we can minimize our chemical
dispose cost. So, we want to analyze these things before and after changes and we can make
accurate decision. In clearly there is a raw material called F15 abandoned because of the toxic
context. This is used for old projects. But we can’t use that. So, we want to face an expense for
dispose the chemical.

And we can say that by these changes we are not heading any other costs as well. For an example
when we get an approval from the government tax can be imposed by the government as well.
So, we want to consider about that for the economic factor.
 3.2.3. Environmental Aspect

We all know that the chemical wastage is not like other normal wastages. Because it can provide
so harmful effects to the environment very quickly. Because of that we want to dispose these
chemical wastages more than safely or we want to recycle that chemical to reduce the affect from
the Woxide production. Because of this thing we want to analyze how we dispose our chemical
wastages without affect our environment. We can face a problem that the government can reject
our Woxide production when this is harmful for the environment. So, we want to make a report
about how we can complete this production without make any harmful thing to the environment.
If we recycle the chemical wastage, we can make that work under the REACH (Registration,
Evaluation, Authorization, Restriction of Chemicals). When the Woxide production they
mentioned F15 raw material is content of toxic materials. But we are not using this F15 for
Woxide production. They are an expense when we dispose the F15 chemical. But we want to
dispose the material. Then only we can reduce the harmful affect for the environment.

3.2.4. Social Aspects

When we analyze about the social aspect we want to consider about the peoples near the factory.
We want to produce the Woxide without making more pollutions. When we make pollutions that
can be affect the peoples near the factory. The contains of the chemicals can be make the people
getting sick. This can be making a legal problem against the company as well. So, we make sure
that the specific percentage of the surrounding of the factory is owned by our factory. Because of
this we can make sure that the peoples nearby the factory are not affected by this production and
face legal problems with this thing statement.

3.2.5. Technological Aspect

We know that in this modern world the new technologies became an evolution part. In this
situation we also consider the technological side when we produce a new thing. We are using the
old machineries for this production as well. So, we won’t to buy new equipment for this new
production. But we want to make sure we are using the new technological equipment for this
production. Because as an example old equipment’s if there is a repair or an old technology
equipment can make more pollutions when production. So, we want to make sure our equipment
are the new technology things, and we are using the more environment favorable equipment.
 3.3. Ways of the dealing with the risk.

According to the scenario analysis, change of the one variable is not the practical thing because
when it comes to the real-world, change of the more variables at the given time of period.

When cost of capital decreased by the 10% to 8% and when lifespan of the project is decreased
by the 3 years to 5 years, as a result of this present value of the future costs decreased from the £
249,226 to £ 244,349. Hence, it represent the decrease cost by £ -4877. As a percentage of (1%)

When cost of capital increased by the 10% to 12% and when the lifespan of the project is
increased by the 3 years to 5 years, it represent the increases of the present value of future costs
by £ 249, 226 to £ 264,736, which is increase by £ 15,510 in the cost or

1% =
4. Recommendations.
 5. Appendices.
Appendix 1: Present Value of Future Costs of Raw Material at 10% Cost of Capital.

Raw Material A B C D E F
Current stock level (Kg) - 200 400 400 800 200
Annual requierment (Kg) 40 800 100 160 400 200
Replacement cost (per Kg) 160 320 120 200 320 180
Scrap value (per Kg) 100 40 120 80 120 -
Used elesware in the business Yes Yes No Yes No No

Conrtibution earned by using raw material in other products

( After charging material at current replacement cost
10 40 N/A 44 N/A N/A

Special Purchases (Kg) 200

Disposal value ( per Kg) 40
Purchase cost (per Kg) 160

Year 0 1 2 3 4
Sales - 550,000 450,000 450,000 300,000
Puchase of A - (6,400) (6,400) (6,400) (6,400)
Puchase of B (256,000) (256,000) (256,000) (256,000)
Purchase of C (48,000) - - - -
Puchase of D (39,040) (32,000) (32,000) (32,000)
Puchase of E (96,000) - - (128,000) (128,000)
Puchase of F (32,000) - (36,000) (36,000)
Disposal cost saved of F 8,000 8,000 - - -
HR cost - (30,000) (30,900) (31,827) (32,782)
Redundancy cost - - - - (3,000)
OH Cost - (1,000) (1,000) (1,000) (2,000)
Net incremental Cash Flow (136,000) 193,560 123,700 (41,227) (196,182)
DF @ 10% 1 0.909 0.826 0.751 0.683
DCF (136,000) 175,964 102,231 (30,974) (133,995)
Appendix 2: Present Value of Future Costs of Raw Material at 12% Cost of Capital.

Year 0 1 2 3 4
Sales - 550,000 450,000 450,000 300,000
Puchase of A - (6,400) (6,400) (6,400) (6,400)
Puchase of B (256,000) (256,000) (256,000) (256,000)
Purchase of C (48,000) - - - -
Puchase of D (39,040) (32,000) (32,000) (32,000)
Puchase of E (96,000) - - (128,000) (128,000)
Puchase of F (32,000) - (36,000) (36,000)
Disposal cost saved of F 8,000 8,000 - - -
HR cost - (30,000) (30,900) (31,827) (32,782)
Redundancy cost - - - - (3,000)
OH Cost - (1,000) (1,000) (1,000) (2,000)
Net incremental Cash Flow (136,000) 193,560 123,700 (41,227) (196,182)
DF @ 12% 1 0.833 0.694 0.579 0.482
DCF (136,000) 161,300 85,903 (23,858) (94,609)

NPV 10% (18,587)

Appendix 3: Present Value of Future Costs of Raw Material at 8% Cost of Capital.

Year 0 1 2 3 4
Sales - 550,000 450,000 450,000 300,000
Puchase of A - (6,400) (6,400) (6,400) (6,400)
Puchase of B (256,000) (256,000) (256,000) (256,000)
Purchase of C (48,000) - - - -
Puchase of D (39,040) (32,000) (32,000) (32,000)
Puchase of E (96,000) - - (128,000) (128,000)
Puchase of F (32,000) - (36,000) (36,000)
Disposal cost saved of F 8,000 8,000 - - -
HR cost - (30,000) (30,900) (31,827) (32,782)
Redundancy cost - - - - (3,000)
OH Cost - (1,000) (1,000) (1,000) (2,000)
Net incremental Cash Flow (136,000) 193,560 123,700 (41,227) (196,182)
DF @ 12% 1 0.926 0.857 0.794 0.735
DCF (136,000) 179,222 106,053 (32,727) (144,199)

NPV 8% (27,652)
Appendix 4: NPV at different Cost of Capital.

NPV at defferent Cost of Capital

NPV at defferent Cost of Capital
0
8% 10% 12%

-5000

-10000

-15000

-20000

-25000

-30000
Appendix 5: Present Value of Future Costs of Raw Material for 4 years.

Raw Material A B C D E F
Current stock level (Kg) - 200 400 400 800 200
Annual requierment (Kg) 40 800 100 160 400 200
Replacement cost (per Kg) 160 320 120 200 320 180
Scrap value (per Kg) 100 40 120 80 120 -
Used elesware in the business Yes Yes No Yes No No

Conrtibution earned by using raw material in other products

( After charging material at current replacement cost
10 40 N/A 44 N/A N/A

Special Purchases (Kg) 200

Disposal value ( per Kg) 40
Purchase cost (per Kg) 160

Year 0 1 2 3 4
Sales - 550,000 450,000 450,000 300,000
Puchase of A - (6,400) (6,400) (6,400) (6,400)
Puchase of B (256,000) (256,000) (256,000) (256,000)
Purchase of C (48,000) - - - -
Puchase of D (39,040) (32,000) (32,000) (32,000)
Puchase of E (96,000) - - (128,000) (128,000)
Puchase of F (32,000) - (36,000) (36,000)
Disposal cost saved of F 8,000 8,000 - - -
HR cost - (30,000) (30,900) (31,827) (32,782)
Redundancy cost - - - - (3,000)
OH Cost - (1,000) (1,000) (1,000) (2,000)
Net incremental Cash Flow (136,000) 193,560 123,700 (41,227) (196,182)
DF @ 10% 1 0.909 0.826 0.751 0.683
DCF (136,000) 175,964 102,231 (30,974) (133,995)

NPV 10% (22,774)

Appendix 6: Present Value of Future Costs of Raw Material for 5 years.

Year 0 1 2 3 4 5
Sales - 550,000 450,000 450,000 300,000 300,000
Puchase of A - (6,400) (6,400) (6,400) (6,400) (6,400)
Puchase of B (256,000) (256,000) (256,000) (256,000) (256,000)
Purchase of C (48,000) - - - - (12,000)
Puchase of D (39,040) (32,000) (32,000) (32,000) (32,000)
Puchase of E (96,000) - - (128,000) (128,000) (128,000)
Puchase of F (32,000) - (36,000) (36,000) (36,000)
Disposal cost saved of F 8,000 8,000 - - - -
HR cost - (30,000) (30,900) (31,827) (32,782) (33,765)
Redundancy cost - - - - (3,000)
OH Cost - (1,000) (1,000) (1,000) (2,000) (2,000)
Net incremental Cash Flow (136,000) 193,560 123,700 (41,227) (193,182) (209,165)
DF @ 10% 1 0.909 0.826 0.751 0.683 0.621
DCF (136,000) 175,964 102,231 (30,974) (131,946) (129,875)

NPV 10% (150,600)

Appendix 7: Present Value of Future Costs of Raw Material for 3 years.

Year 0 1 2 3
Sales - 550,000 450,000 450,000
Puchase of A - (6,400) (6,400) (6,400)
Puchase of B (256,000) (256,000) (256,000)
Purchase of C (48,000) - - -
Puchase of D (39,040) (32,000) (32,000)
Puchase of E (96,000) - - (128,000)
Puchase of F (32,000) - (36,000)
Disposal cost saved of F 8,000 8,000 - -
HR cost - (30,000) (30,900) (31,827)
Redundancy cost - - - (3,000)
OH Cost - (1,000) (1,000) (1,000)
Net incremental Cash Flow (136,000) 193,560 123,700 (44,227)
DF @ 10% 1 0.909 0.826 0.751
DCF (136,000) 175,964 102,231 (33,228)

NPV 10% 108,967

Appendix 8: Present Value of Future Costs of Raw Material for different lifetimes.

NPV in defferent lifetimes

NPV in defferent lifetimes
150000

100000

50000

0
3 Years 4 Years 5 Years

-50000

-100000

-150000

-200000
Appendix 9: cumulative present value of the future costs of raw materials

Chart Title

450000

400000

350000

300000

250000

200000

150000

100000

50000

0
Y0 Y1 8% Y2
10% 12% Y3 Y4

8% 10% 12%
Y0 136000 136000 136000
Y1 315222 311964 297300
Y2 421275 414195 383203
Y3 388548 383221 359345
Y4 244349 249226 264736
6. Reference.