Financial Management and Risk Analysis Assignment

Financial Management and Risk Analysis - Assignment ExampleThe new automated assembly line will be requiring the obtain of five new robots, each costing $32,000 and associated gripping devices costing a total of 65,000. Roller tracking and new assembly fixtures will also be needed adding up to a cost of 15,000. The new assembly cells will be manned by three cell programmers/operators who will be paying 20,000 each. The finance department estimates that installing the automated system will generate an annual cost savings of 5,000 due to the reduction in reduction in scrap and rework. After five course of studys, the robots can be sold each with market value of 1000.This report will analyse the possibility of investment in the new assembly line by utilizing financial management tools. The branch section will look at the annual expected cash in functions and outflows. The close will be an analysis of the investment through the use of capital budgeting tools like payback period, retu rn on investment, net present value, discounted payback period, inbred rate of return, and sensitivity analysis. Recognizing that numbers dont tell all, this report also goes beyond quantitative analysis by also looking at the quantitative issues which should be considered by the firm.Table 1 shows the expected annual cash flow that our business organization hopes to incur in the installation of the automated assembly line. ... The first to fourth years are forecasted to generate cash inflows of 93,000 annually which reflects the cost savings from rework and scrap and the elimination of the cost incurred in hiring fitters offsetting the salaries of the computer technician. During the one-fifth year, the company will be incurring the same costs and benefits together with the expected salvage value of the robots.Table 1. Forecasted Cash decreaseIII. Payback diaphragmThe payback method is one of the most popular tools in conducting capital budgeting decision. The payback period tel ls the company the length of time required to recoup the airplane pilot investment through investment cash flows. This is essentially the time when the company breaks even-the initial capital outlay is equal to the cash flows. Considering that the business organization invests in a project which generates the same level of cash flow annually, the payback period is computed as the followsPayback = Initial Investment Annual Cash Flow(equation 1)However, if the investment generates unequal annual cash flows, then the individual annual cash flows are subtracted from the initial investment until a difference of zero is reached (Lightfoot 2003). The year when cash flow equals investment is the payback period. Other things being equal, the investment with a low payback period is chosen as it implies less try for the company.Table 2. Payback PeriodTable 2 shows how the pay back period for the proposed automated assembly line. As the investment yields unequal cash flow for the five-year pe riod, this report simply subtracted the yearly cash inflow to the total amount of the investment. The cash outlay for