Project Analysis
Abstract
The report is commissioned to discuss the financial viability of the new project, which Marriot Marquis is considering as part of its sustainability project. In order to appraise the capital project, I have performed the due analysis using capital budgeting techniques under two different scenarios, i.e. with no initial investment and then,an initial investment of $35000. Our calculation revealed that with the initial investment of $35000, the project yields negative NPV. However, if the company initiate the project with zero investment and makes an annual investment of less than or equal to $1660, it can still maintain positive NPV while adopting to its mission of sustainability.
Annual Waste Cost:
a) Annual Cost of Recycle and Trash:
Since 35-yard container can be shared for recycled and trash waste, we assume that both of these waste are processed in one 35-yard container every month. Accordingly, with the container cost of $150 and tonnage price of $59, the total cost of recycled and trash waste on annual basis will be:
Container Cost* Number of Containers in a year+ Total ton waste* Tonnage Price
Annual Cost of Compost Waste:
Compose waste is measured in 35-gal container and 22.5 containers are required to treat a ton of compost waste. Therefore, under the preceding assumptions, we have calculated the cost hereunder:
Total Waste Cost: Cost of Recycle& Trash+ Cost of Compost
= 70684.8+ 9420.64
= $80,105.44
1-2: Estimation of NPV with no initial investment
Before estimating the NPV of the given project, it is important we calculate the expected cash flow and discuss the appropriate discount rate.
-Discount Rate:
Discount rate here is represented by appropriate cost of capital that represents the average risk associated with the project. Therefore, assuming that the discount rate of 10-year corporate bond yield represents the average risk of the project, we will use 3.85% as the discount rate for this project
-Expected Cash Flow
The expected cash flow for the project are calculated on the basis of following formula and assumptions:
Expected Cash Flow: Cost Saving*Ymax*Conversion Rate
Here:
Cost Saving: Annual total Cost* 20%
Ymax= Assumed to be constant at 20%
Conversion Rate: 0.10 with 0.10 growth every year
-NPV Calculation:
Scenario 1-2: No initial investment
Under the assumption that the company makes no initial investment, in order to produce a positive NPV multiple, the company can still make an annual investment of $1660 every year. The detailed calculations are provided hereunder:
Scenario 1-3: Initial investment of $35000
As we can see from the table below, with an initial investment of $35000, the project already yields negative NPV. Therefore, making another investment every year will further reduce the NPVmultiple.
Financial Analysis
Referring to the above figures, we can see that if the company is required to make an initial investment of $35000, the project will yield a negative NPV and will not be feasible. On the other hand, if no initial investment is made, the firm can still continue to generate positive NPV with an annual investment of $1660 every year.
Henceforth, the sustainability project will only be financially feasible if the company opts for no initial investment and annual investment of less than or equal to $1660.
Conclusion
As a project manager, I do give my nod to this project, but under certain restrictions. Our company does understand the importance of the growing need for sustainability, however, at the same time, we also need to ensure that each project is financially sound and must enhance the wealth of our shareholders.Therefore, considering all the aspects, I recommend to proceed with the project without maing any initial investment followed by annual investment of less than or equal to $1660.
