Contents

Executive Summary.................................................................................................................................2
Appendix: One.........................................................................................................................................3
Appendix: Two.........................................................................................................................................3
Appendix: Three......................................................................................................................................3
Appendix: Four........................................................................................................................................4
Executive Summary
The company is having confusion about the construction of the factory building to start up the
business and other option is having the lease the factory building. The company will calculate
the net present value with the understanding that the method is good for the company. In the
given case the company is having a negative NPV in both cases but the construction is having
less negative, so this method is good for implementation. The company will use ratio analysis
and compare it with the industry to understand the growth of the company in the long run. This
comparison is useful for the insider to take the decision of the growth of the company and this
comparison is useful for the outsider to decide on the investment purpose. the ratio analysis is
calculated by the income statement and financial statement. The contribution margin is the
method to know the break-even point of the product and sales. This is useful for understanding
how many units need to produce and sales to achieve the break-even point. When the
company is manufacturing any product and the no profit and no loss this situation is known as
the break-even point. The company is going for the make or buy an option the company
calculates the price based on the available data which is suitable for the company. If the price is
less in the make option or buy option so this will be selected.
Appendix: One
There are two options for setting up a new business project. One is constructing the business or
taking on the lease. The net present value method is more important to know the viability of
the project. Net present value (NPV) is calculated based on the cash inflow minus cash outflow.
When the inflow is higher it means the project is a positive NPV so the project should accept.
The NPV under construction of this project is ($ 608,680) and the NPV under the lease is
($16,98,913). So both project is not having a positive NPV so both projects are not viable for the
setup in the company but NPV under the construction is lesser amount so if the company wants
to choose so construction method is good. The construction method is having less NPV. So this
will be better for the company to accept.

Appendix: Two
Ratios are calculated to compare with the industry so that the company can decide for the
betterment and growth of the company. Ratio analysis is useful for the insider and outsiders of
the company. The current ratio is 3 and it's higher than the idle ratio and industry ratio which
means the company is very good in the liquidity position. The company can meet its liquidity
position on a real-time basis. As per the industry trend, the days outstanding is 39 days but, in
the company it is 38 days so the company is realizing the money on an early basis so this is also
a good sign in the liquidity position of the company. Interest earned is 9 times which is higher
than the industry so this will be better for the company. The company is having a profit margin
is 13.33% but the industry is 16% so the company needs to work on the increment in the profit
for the current year. Days inventory are the most important for the liquidity position the
inventory days are 82 days and the industry is having 62 days so the company needs to work on
the reduction of the inventory days. The higher the days represent the higher the carrying cost
of the inventory. Return on assets is higher as compared to the industry and it shows how the
company is using its assets to generate more return. So the company is having a strong position
in this ratio. Cash current debt coverage is lesser than the industry, it shows the debt is less so it
will provide a better position to the company.

Appendix: Three
The contribution margin can be calculated based on the sales minus variable cost. The
contribution margin percentage can be calculated based on the contribution margin divided by
sales revenue. The contribution margin increases by 50% so the variable cost will decrease and
the profit will increases and the BEP are also decreased. Before that, the contribution margin
increases and the fixed cost increases the profit also increases as compared to the earliest. The
increment in the operating profit will help the increment in the operating leverage of the
company. In the company the fixed cost increases and contribution margin increases so this is
the best way the getting more net income. The degree of operating leverage is 3.21 for the
company. The contribution margin is 37.50% but an increment in the 50% of the contribution
margin so that the company gets 56.25%. The new break-even point growing in the updated
method is 1102222.22.

Appendix: Four
The company is having two options make or buy the product. The new method is having the
option to make the product or buy the product. The company is choosing the making the
product, in that case, the relevant cost is higher and the buying the product at that time the
relevant cost is negative so this project is better for the company. The relevant cost for buying
the product is ($12,86,250) so the company needs to go to the buying the product method.