Coffee Manufacturing Company Case Study Example | Topics and Well Written Essays - 1250 words

Coffee Manufacturing Company - Case Study Example From this paper it is clear that   to illustrate our finding, the result of the calculation illustrates that the cash flow for the beginning of the first four years of the sales of the New Home Machine projection are correlatively negative ranging from -146.35 to -273.0. In this sense, company may tend to make a loss for the earlier stage of this new projection and spend more money on the promotion of this new project and test marketing cost and so on due to the new project having low reputation, credibility and lack of competition as it is a new entrant within the industry. As the discussion highlights capital budgeting expenditure is usually of very high value; therefore, the management must undertake a careful analysis before resolving to put money in such projects. This is because, if decisions are made without careful analysis, heavy losses can be incurred or else the management can abandon a very profitable project. As such, this project will involve extensive analysis using techniques such as IRR, NPV and PBP. The objective of this capital analysis is to find out whether the management of Coffee Manufacturing Company (CMC) should adopt Home Grinder Cappuccino Machine or abandon it altogether. The decision as to whether to adopt the machine or abandon it will depend on the outcome of different capital budgeting methods including payback method, Net Present Values, and Internal Rate of Return. The analysis will ensure that the management adopts the projects only when there is an assurance that it will be of substantial economic benefit and abandon i t if investing in it will not have any economic relevance. The analysis will involve a variety of capital budgeting techniques such as Net Present values (NPV), Internal Rate of Return (IRR) and Pay back method. To establish the present values, a discount rate, which in this case is the opportunity cost of capital, is used.