Capital Budgeting Analysis For Saturn Petcare’s ‘Buddy’ Pet Food Range

The management of Saturn Petcare ltd plans to implement a policy whereby the management can improve the sales of the business and thereby increase the revenue of the business. The management wants to introduce a new manufacturing unit which will be producing new dog wet food products.

The sales volume which the management anticipates to produce on a yearly basis is around 16,000,000 cans for which the NPV, Payback period and Profitability Index of the project. The decision of the management is to be analyzed considering the investment appraisal techniques which are used by the business (Bianchini et al., 2016). The management will also be considering the what if situation wherein if the product is over produced by 5% or where the product is under produced by 5%. The total investment of the project is shown to be $ 20,000,000 and the net present value of the project under normal production conditions is $ 26,841,320 which is favorable and so is the profitability index and payback period analysis (Brewer & Stout, 2014). The NPV of the project under 5% less production capacity is shown to be $ 23,317,179 which is also shown to be favorable for the business during the period. The surplus production of the business in case of 5% more production is shown to be $ 30,365,462.

The only concern for the business is the costs factor which is to be considered for the project and the same needs to be controlled by the management of the business during the period.

The management of the business needs to select Option B for the purpose of replacement as the same option provides the business with maximum NPV which also signifies that Option B will be more profitable for the business.

References

Bianchini, A., Gambuti, M., Pellegrini, M., & Saccani, C. (2016). Performance analysis and economic assessment of different photovoltaic technologies based on experimental measurements. Renewable Energy, 85, 1-11.

Brewer, P. C., & Stout, D. E. (2014). The future of accounting education: Addressing the competency crisis. Strategic Finance, 96(2), 29.