Acquiring Sewing Machine - Essay Example

The paper "Acquiring Sewing Machine" is an outstanding example of a business essay. This paper utilizes excel financial functions to determine the present values, cumulative interest rates and loan payments schedules. The paper demonstrates the various techniques that aid in the determination of investment decision making and also decisions such as production level and price levels.

Analysis:

Investment Decision (NPV)

The first section of the paper analyses whether the company should invest in a given project that requires 40,000 start-up capital, profits are expected to increase BY 10,000in the first 4 years and to increase by 5,000 in the next 4 years. Given that the interest rate is 12% the NPV determined is positive and this means that the project will add value to the firm. When the rate is reduced to 10% then there is a large increase in the NPV value, this means that interest rates play an important role in determining investment decisions.

Funding:

The other decision to make is regarding funds, the company considers borrowing the initial capital from the bank, the company will be required to pay an interest rate of 10.57% compounded annually. It will be required to pay on a quarterly basis and so will the compounded interest. Results show that if the company repays the amount in 8 years, then it will have to pay $1,867 every four months. After 8 years, the company will be required to pay 19,763 in interest rates. During the first 7 payment periods, the interest rate payments will be higher than the payments of the principal amount. Another alternative would be to make an initial deposit of 4,000, when this option is selected then the company will only have to pay $17, 787 in interests, also the payments each period will also reduce.

Acquiring a sewing machine:

The company wants to acquire a sewing machine, in this case, the alternative is to make a $100 initial payment or a $500 initial payment, in the first option the company will be required to pay $301 per month for 12 months, in the second option the company will only pay $268 per month. Com paring these two options it is evident that the company should consider making a higher initial payment of $500.

Profits:

In the analyses of profits it is evident that given a price of $110 per jacket, the break-even point is 85 units when the company produces less than these units then the company realizes losses, if the company produces more than 60 units then the company realizes profits. If the company wants to make a $1000 profit per month then it will be required to produce 85 units. If the company increases the price by 10% then the company may not be in a position to realize the same profit level, therefore the company should not increase prices.

Conclusion:

From the above discussion, it is evident that excel is an i9mportant tool in business, it aids inaccurate determination of important measures of performance and analysis, the calculated values in this paper are important in decision making regarding investment, sources of funds, production levels and pricing. All these are important in business and businesses aimed at succeeding should utilize these measures.