Repulse travel Pharmaceuticals Coursework Example | Topics and Well Written Essays - 2500 words

Repulse travel Pharmaceuticals - Coursework Example In order to find out the profitability of the product the Earnings Before Interest and Tax (EBIT) accumulated from the product needs to be calculated. Based on the financial data estimates the EBIT of the product is calculated. However the calculation of EBIT, the depreciation was also needed to be calculated on a straight line basis based on the formula: Depreciation= (Historical cost- Residual value)/ Life of the Asset (Gupta, & Sharma, n. d, p.376) In order to calculate the EBIT, the sales value was considered and the total amount of fixed cost and variable cost was subtracted to get the ultimate results (Correia, et al, 2007, p.3-4). Based on the calculation shown in Appendix 2 the company will reap a profit of ?185,000 annually from the launch of the new product. However the figures of sales are based on assumption. The change in market condition and the rise of competitor in the market however can cause a variability in the sales which has not been considered in the calculation of the EBIT or the operating profit of the product. After the profitability of the project is considered, a look at the total cash flow using the undiscounted method is taken into consideration. For the calculation of the cash flow, the difference of the cash inflow and the cash outflow is considered. An assumption has been made in the calculation of the cash flow as the cash inflows are taken to be constant for the five years. Total cash flow is calculated based on the formula of Total cash flow = Total of cash inflow – Cash outflow. (Ahmed & Meehan, 2011, p.599) The calculation done on Appendix 3 shows that the total cash flow of the company is ?475000 However the undiscounted method for cash flow evaluation does not provide a true picture as the future value of the money... The research analyzes the feasibility of the new product to be launched by Repulse Travel Pharmaceutical. During the analysis, the data have been taken based on the estimate of the research. The financial parameters which have been taken into consideration are the payback period, Net Present Value analysis, and Sensitivity analysis. The result of the payback period reveals that the product will take a period of 3.5 years to generate the total amount invested by the organization in its implementation. Considering the total lifetime of the project to be 5 years as decided by the company, the time period of 3.5 years seems predominantly long. However further studies were conducted and the result of the discounted cash flow analysis, involving NPV suggested that the project has a positive result and is quite viable to be implemented. In the sensitivity analysis factors of demand and the selling price was manipulated to observe the change in NPV under each case. The results show that the decrease in demand or the selling price of the product will put the product in danger. However it is suggested that the organization can implement the product if they can maintain a constant demand of the product and they should be specific in not decreasing the unit selling price below 10 percent from the original value of 7, as found in the sensitivity analysis. Further the organization must consider a thorough market analysis to understand how the product will perform in the market after a comparative analysis of the competitors.