Case ID: 12365
Solution ID: 37163
Words: 2088
Price $ 75

Invast Precision Products

Overview of Case Solution

Invast Precision Products engages in the casting business. The company is facing strong growth prospects. It has historically employed an ineffective capital budgeting process, but is looking to remodel its capital budgeting around the more relevant net present value approach. The company is considering six different projects under the current period and has a shortage of funds. It may not be possible for Invast to arrange equity and debt financing, which limits the company to internally generated funds. The company is at a crucial point and faces good opportunities for investment that are in line with its growth prospects. Therefore, it is recommended that the company sell its land investment to free up more funds for its capital budgeting projects. The net present value for four projects have already been calculated and we calculate the net present values for the two remaining projects. The projects are sorted in terms of their profitability index where the projects with high profitability index should be preferred as they generate the most return, relative to their initial investment. The company should not accept any investment that has a negative NPV. It is recommended that the company should undertake the platforms and sand blaster projects in any case. The company should also accept the broach project if it is found that it generates a positive NPV when all of the relevant cash flows are considered. If the company is able to sell its Hawaiian land, the company should use those funds to finance its casting renovation project as well as the land acquisition project.

Excel Calculations

Sheet 1: Calculations for Invast Precision Products

·         Land Acquisition Project

·         Casting Renovation Project

·         Net Present Value

·         IRR

·         PI

Sheet 2: Analysis of Projects

·         NPV

·         Cost

·         Profitability Index

Questions Covered

·         Capital Constraint

·         Investment Appraisal of Projects

1.       Land Acquisition Project

2.      Casting Renovation Project

3.     Analysis and Recommendation

Keywords

Invast, Precision