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1. Guide to Financial Analysis

10. Enter the costs and benefits into the Financial Calculator For each year enter the anticipated capital and operating expenses into the financial calculator spreadsheet. For each year enter the anticipated benefits into the spreadsheet. Adjust the discount rate if appropriate. Enter sensitivity values (% cost increase and % revenue decrease values) The spreadsheet will automatically calculate the financial indicators

13. Investment Analysis Note: The discount factor is based on a discount rate of 13%. Hence at the end of the first year $1 is worth 87c, drops to 75.6c in the second year, 65.8c in the third year etc. If the Net Present Value is less than zero then this indicates the project is not financially worthwhile.

14. Is defined as the discount rate at which an investment has a zero net present value. The internal rate of return equates to the interest rate, expressed as a percentage, that would yield the same return if the funds had been invested over the same period of time. Therefore, if the internal rate of return for the project is less than the current bank interest rate it would be more profitable to put the money in the bank than execute the project Internal Rate of Return

15. Sensitivity Analysis Projects do not always run to plan. Costs and benefits estimated at an early stage of a project may indicate a profitable project, but this profit could be eroded by an increase in costs or a decrease in the value of the benefits (the revenue). Sensitivity analysis provides a means of determining the financial impact of this type of fluctuation. By entering an anticipated percentage increase in costs or decrease in revenue the financial impact on the project can be identified by looking at the change to the NPV or IRR measures.