The week 2 paper delved into the issue of early pregnancies and on the various sources of funding that can be marshaled in order to ensure the set objectives become are realised. The paper was able to suggest the various ways in which the funds so raised will be utilized to ensure that no wastage is realised. The costs involved in the pertinent issue of unplanned pregnancies were also extensively discussed. This paper shall focus on the financial viability of the financial proposals made earlier. The revenues as well as expenses so identified will be appraised using the key financial accounting techniques. Finally, the paper culminates in a discussion of the figures so calculated. Implications of the figures as well as conclusion will be duly given.
The paper shall begin by computation of the financial yardsticks necessary in evaluating projects. At the foremost is the calculation of deficits/ excesses from the budget earlier presented.
| Analysis of Revenues | |||||||||
| Year | Revenues | Expenses | Excess/Deficits | ||||||
| 1 | 250,000 | 237,700 | 12,300 | ||||||
| 2 | 200,000 | 200,000 | 0 | ||||||
| 3 | 150,000 | 150,000 | 0 | ||||||
| 4 | 150,000 | 150,000 | 0 | ||||||
| 5 | 150,000 | 150,000 | 0 |
From the above, it’s clear that in year 1 there was an excess of 12,300. Similarly year 2, 3, 4, and 5 both had a zero profit. From this point of view we can clearly conclude that the project was self sustaining. This is because the expenses are well covered by the projected revenues. However, of great concern is the static nature of the revenues from year 3 onwards. This scenario is wanting as it implies that there are no prospects for growth of the project. It becomes even more serious when you take into consideration the fact that expenses might grow due to unforeseen circumstances. Therefore based on the criterion selected above, the team should endeavor in coming new financiers on board. This will go a long way in ensuring that the project remains self financing.
Net present Value
The net present value evaluates the time value of money. It is based on the rationale that one dollar received today is worth more valuable than a dollar to be received tomorrow. This is mainly due to inflationary tendencies (Žižlavský, 2014). As such, it is imperative that the time value of money is considered before a project is carried out. In this case we’ve assumed the discounting rate is 15%. Therefore, it must be kept in mind that the results would be different if the rate was different.
| Year | Revenues | PVIF | Disc Revenues | Expenses | Pvif | Disc. Expenses | Deficits/Excesses |
| 1 | 250,000 | 0.869500 | 217375 | 237,700 | 0.869500 | 206680.15 | 10694.85 |
| 2 | 200,000 | 0.756143 | 151228.6 | 200,000 | 0.756143 | 151228.6 | 0 |
| 3 | 150,000 | 0.65750 | 98625 | 150,000 | 0.65750 | 98625 | 0 |
| 4 | 150,000 | 0.57170 | 85755 | 150,000 | 0.57170 | 85755 | 0 |
| 5 | 150,000 | 0.497176 | 74576.4 | 150,000 | 0.497176 | 74576.4 | 0 |
From the figures presented above, it is clear that the revenue streams give a positive net present value. This is a strong indication that the project is financially sound when the time value of money is considered. This implies that the returns of the project are positive. However of great concern is the net present value for year 2, 3, 4, 5 which turns to be zero. In a case where new expenses arise, the project will strain in meeting them.
Disadvantages of Net Present Value
The foremost advantage of net present value is that it considers the time value of money. That is, cash flows are discounted every period in accordance with the discounting rate available. Secondly, it enable project planners know beforehand whether the project is going to generate revenues enough to meet the expenses arising. Moreover, the method factors in the initial capital outlay. This is important as it assures the project managers that their initial cost outlay is factored in.
Pay Back Period.
Payback period is a capital budgeting method which evaluates the period which a project takes to recover its initial costs. The main aim of this measure is to enable project managers evaluate the time period that the project will take to recover the initial cost invested (Bouwens, 2014). In our case however, the scenario is different because the project proposed begins with funds being collected from the various sources.
Payback period is gotten as follows: