Net Present Value: Capital Budgeting

Table of Content

RIFF security issues may be addressed through a variety of means including policy, process and technology. There are clear advantages to addressing security and privacy issues prior to the adoption and deployment of this technology, whether it be through policy, process or technology design.

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In an ideal world every employee arrives on time for work. The reality of things is unfortunately quite a different case and having the tools to quickly and easily track time and attendance is needed in every organization.

With the use of different wearable technologies you no longer have to waste time managing punch cards or roll call paperwork either. Following is the infrastructure squired: Check in Station & Hardware: Since you will be tracking attendance for a given location or event, you will need to determine how many and where your check- in stations will be. A check-in station is where a user will scan their ID and record their attendance. A station can be a basic PC with a reader or an independent terminal. A terminal offers the ability to be placed in places where a normal PC may not fit and will have options for integrated scanners and readers.

Enterprise software application: PC or terminal, both will run software that is logging and managing all the timing and attendance data. These systems can be batch collecting stations or networked to provide real-time updates. The software running at each station will ultimately determine how you track attendance and to what detail. At the very minimum a system will track the user ID and a time but more detailed information can also be recorded. Data management & storage: Cloud computing is a prevailing technology in which computing infrastructure, hardware, software and services are provided wherever and whenever needed.

Regardless of the environment, your tracking software will need to accommodate all the data you need recorded. Services for levering & providing access to software remotely as a web-based service that are implemented on cloud as AAAS (Software as a Service). The transmitted data is stored and managed on the cloud and is made available in a reliable manner to any application that requests it. This reduces the maintenance and support cost, which is one of the implementation barriers, while increasing overall system consistency and flexibility.

Networking/telecommunications platform: telecommunication platforms are typically provided by telecommunication/telephone services companies that offer voice and data connectivity, wide area networking, wireless services and internet access. This will help in real time management of time & attendance. System Integration: The last concern with any system is integration with other systems. Any attendance application will be able to export all its data for further processing like payroll and accounting use but greater connectivity is possible as well.

Many attendance tracking applications will be tied to an access control system for a building or a work in process system to gather employee performance and accountability information. With the appropriate software in place, a time and attendance application can become fully integrated with any cuisines process for greater efficiency.

BEST PRACTICES OF WEARABLE TECHNOLOGY

The purpose of time and attendance is to automate collection of hours worked and accrual of paid time off. Time Reporting: Each day the staff member will “swipe” his or her ID card through a badge reader as they arrive at work and upon departure.

Hours will automatically be collected and sent to payroll, along with the appropriate pay rate and premiums. Recording Time: Staff will have ownership and accountability for inputting work time hours, and will be able to access information about their details online. Supervisors will be able to override the system and make the necessary corrections. All staff are able to use the internet to view their own tidemarks in order to check hours worked and review performances. Staff are to record time worked according to the time reporting instructions.

Errors in recording time must be reported and corrected in accordance with the time reporting guidelines. Ensuring Reporting and Recording Accuracy: Staff in hourly paid positions is required to accurately report time worked by swiping in and out of electronic time and attendance system. Staff or supervisors responsible for time reporting just take steps to ensure the accuracy of the data collected. When a staff member, supervisor, and/or responsible designed submits and approves time reporting data, he or she is attesting to the accuracy of that data.

CAPITAL BUDGETING FOR WEARABLE TECHNOLOGY

The spreadsheet analysis the basic costs and benefits of implementing wearable technology system for time and attendance management. The costs and benefits are analyses for over a period of 4 years with initial investment of $550000.

PAYBACK PERIOD “It is a measure of time required to pay back the initial investment of the project. In the case of our organization using wearable technology, the initial cost of the project is In the first year, the cash flows total $370,190. After the first year, the total cash flow is $376,490, so the project pays back in around layer 4 months approximately.

NET PRESENT VALUE “Net present value is a financial technique which uses a projects costs and returns over time to determine if the project will make a positive return. ” Whereas, the discount rate is 10% which is the level of return we want to make on the money invested in the wearable technology. The total of discount of unifies is $3,67,947 and the cost is $1 , 267,946, giving a net present value of $1,750,556. In other words, for a investment today, the firm will receive more than $17 million. This is a fairly good rate of return on an investment.

INTERNAL RATE OF RETURN (AIR) “Internal rate of return (AIR) is defined as the rate of return or profit that an investment is expected to earn, taking into account the time value of money. ” Here, the AIR is 57%, which is greater than the discount rate 10%, so we can say that the project is acceptable.

PROFITABILITY INDEX (150 WORDS) “Profitability index helps in ranking investments and deciding the best investment that should be made. Pl greater than one indicates that present value of future cash inflows from the investment is more than the initial investment, thereby indicating that it will earn profits. In this case, the profitability index is 4. 18. The project returns more than its cost.

ACTIVITIES ANALYSIS 

For the sensitivity analysis, 3 scenarios are taken into consideration,

  • NP & PI analysis based on different discount rates ,
  • 5% increase in benefits,
  • 5% increase in costs.

The actual figures assumed at 10% gives a Net present value of $1 , 750,556, and the profitability index was 4. 81. However if we decrease the discount rate to 5%, the net present value increases to $1 ,894,247 and the profitability decreases by 0. 37. On the other hand, if the discount rate is increased to 15% the net present value decreases to $1 and the profitability index further decreases to 3. 96. Based on the net present value changes, all the discount rates generate a positive figure and hence the project can be considered, whereas the profitability ranks highest at 10%. Thus, we can conclude that we can start the project at 10% account rate safely as there is less risk involved.

In this scenario we take optimistic estimates that the benefits prove to be higher than expected. The base case assumption produced a NP of $1 , 750,556 and a payback of investments in 1. 4 years. In the best case scenario, if the benefits are increased to 5% and the costs remaining the same, the NP increases to $1,794,934 and also gives a better ROI of 77. 38%. The project also generates a higher AIR of 60% which exceeds the previous assumed case.  In the worst case scenario, where the costs are higher than the benefits. NP is still positive, though lower than in the most likely case. We can be still be reassured that even if costs turn out to be higher than expected, the project would still be worth doing.

The sensitivity analysis shows that the return on the project is sensitive to changes in the projected benefits and costs. However, the parameter where there has been an increase in costs of 5%, is the worst case scenario considered where the NP, AIR, ROI and the Pl all drop, but is still feasible as the NP is a costive value and the AIR is also greater than the discount rate. Although, the payback period shows a rosy picture with recovery of investments been shown as 0. 5 years, it does not consider cash inflows from a project that may occur after the initial investment has been recovered. Thus payback looks at short term profitability hence cannot be the only factor to be considered for deciding on a project.

The second sensitivity analysis was done assuming increase in benefits by 5% which is the best case scenario and the values of NP, AIR, ROI, Payback period and the Pl all show a positive increment and hence a profitable venture o invest in. The values are such that the NP is increased and give a higher AIR and ROI than the base case assumptions. The third sensitivity analysis done is assuming the variation in discount rates, the increase in costs is considered to have more sensitivity. The NP in this scenario is still positive although slightly lower than the assumed base case.

The ROI between the base case and the sensitivity case scenario is not so much, hence doesn’t impact the business decision so much. The only variable that is greatly changes is the payback period, but we cannot completely rely on project decision making based on the payback erred alone. Considering all the capital budget variables the project is still feasible as the NP is positive and the AIR is also higher.

CONCLUSIONS 

Using methods that take into account the time value of money, the wearable technology project is cash-flow positive over the time period under consideration and returns more benefits than it costs. The payback period is 1. 4 years which is good as it indicates the money invested would be recovered quickly. The values of NP, AIR, Pl, payback period and ROI for almost all situations, the NP has been positive and the AIR has been greater than the required rate of return. The increase in benefits is however an optimistic scenario and gives a positive outlook to the entire project of the wearable technology as all parameters of capital budget shows a better return for the investment.

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