Category: Uncategorized
as we know from the time value concept that is the NPV of the investment is negative the project will not be accepted. So
though the investment has a positive impact on the cash flow of the firms as the form of cash flow from operating and investing activities the project should not be accepted as NPV is negative. The discounted present value of the equipment’s depreciation is much lower than the initial investment.
so it incorporates risk of reduction in demand for the company’s product. There is also risk of rivalry among existing firms and new entrants to grab the market of ABC Company.
to decide the way this project can afforded
to provide details about the estimated product costs and returns from this project.
as a Controller and a management accountant it is my recommendation to the CEO would be that the CEO should not go for the investment project as this project is not so much potential to take the risk associated with it. The negative NPV reduces the attractiveness of the investment opportunity. So
new investment should not be made. But the ABC Company may go for the new expansion project as the target growth can be reached through expansion. Moreover
20X2 Dec. 31
20X1
000 $ 70
000
000 $ 180
000
000 $ 280
000
& equipment $ 400
000 $ 300