Example Letter to Cfo Why Project Should Be Accepted
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FINANCIAL CONSULTATION, INC
4596 Date Street
Mansfield, Ohio 44905
419-853-3052
Mr. James Jones, CFO
Defense Electronics, Inc.
186 N. Atlanta Street
Columbus, Ohio 44691
Re: Project Evaluation
Dear Mr. Jones,
Mr. Jones per the request of Albert Finney, President of Defense Electronic, Inc. you will find listed below a comprehensive evaluation of the project to build a new manufacturing facility in a location outside the US. The length of the project is quite extensive as I am sure you are aware potentially lasting 5 years. DEI currently owns the land on which the project is to be built, and it is valued at $10.2 million. The initial cost of the building the facility is forecasted at $30 million with initial required net working capital to start project of $900,000. Which will be raised externally by GM Wharton through the desired methods of increased stocks, and bonds?
The planned facility will produce 17,000 RDSs per year which will be sold at $10,000 each with forecasted breakeven sales rate of 4,150 RDS. Total market value of DEI is $58,910,000
MVD $23,000,000 7.93%, MVE $33,750,000 15.40%, MVP $2,160,000 6.94%. The adjusted cost of building the facility will include the 6.97 % weighted average flotation cost requiring an additional $2,249.235 to be raised on top of the original forecasted amount of $30,000,000. In addition to the increased $2,249,235 DEI will need to raise an additional $67, 477 in additional to the initial required net working capital needs for project startup this is a reflection of the total cost of NWC including floatation costs. Since this project is located outside the US our analysis has factored in an additional 2% for risk meaning that the project required return that needs to be achieved for profit to be made is 13.09%. In our calculations of the cash flows for this project displayed on the attached spread she we have included in year 5 the after tax salvage value and the recovery of the initial NWC.
Since Financial Consultation, Inc. recommendation is to raise the funds for this project mostly from external sources factoring in the additional 2% risk factor our projected NPV is $3,432,432.40 with an IRR of 16.06%. Based on this information Financial Consultation, Inc. recommends that DEI proceed with this project as our projection shows positive and advantageous financial results. If after your review of this analysis you have additional questions that we can answer and provide additional clarification