Financial management and risk analysis Essay Example | Topics and Well Written Essays - 2000 words

Financial management and risk analysis - Essay ExampleThe in the buff assembly cell requires three cell programmer/operators recruited at a salary of 20,000 per year distributively. The cell robots are expected to last for 5 years, afterward which they can be sold off for an estimated price of 1,000 each. The companys cost of capital is currently 10%.This is a two-option financial investment approximation case which compares the cost of operating an existing sub-assembly line with the cost of a new automated assembly cell. Both options incur costs we could compare to see to it out which option results in lower expenses over the neighboring five years. Any savings will increase profits, which we can then transform into superfluous value that would benefit our shareholders.We utilised common investment criteria to analyse this project, and considered other factors that may affect its financial viability. We included our suggested solutions and potential effects on the last-plac e decision through a sensitivity analysis, which takes into account1. The cost of replacing our eight fitters and with three skilled operators. We included the effect of granting separation pay to each displaced operator and made a recommendation on how much we could afford to pay.The key insight to our problem is to match the cash flows for both options. woof 1 is our existing sub-assembly line, whilst Option 2 would be our proposed investment in new automated machines. Each option has a cash outflow over the adjacent five years. Whilst Option 1 would not require a large cash outflow now, it has the same level of cash flows we are currently disbursal to maintain the line. In contrast, Option 2 demands a large cash outflow now, but this would result in lower cash flows over the next five years.We compared both cash flow forecasts and arrived at a net cash flow, which is the amount of working capital we would save from the lower cash requirements of Option 2. A basic assumption is that the sub-assembly lines productivity would be constant, and that