How You Have Used Financial Analysis in Real Life

In one of my current finance courses, the objective is to apply fundamental financial concepts and procedures of real business situations. Working as a team, our case study involved capital budgeting analysis for Victoria Chemicals. The goal of this case was to determine which of the two projects of facility improvements in two plants proposed to Victoria Chemicals managers, would be most profitable. Due to the production process and aged facilities, Victoria Chemicals saw a decline in book value and market value. Plant A lacked technological improvement in comparison to its competitors causing it to be labor intensive than its competitors. This was a major setback in Victoria Chemicals. In addition, the previous plant manager came up with operating guidelines minimizing capital expenditures to cover only necessary maintenance for the past 5 years. We analyzed the internal rate of return, net present value, and the payback period.  My specific role was to review date and correct any discrepancies or mistakes made in the proposals discounted cash flow statements in order to determine which proposal to undertake based on accurate information. My findings showed that the discount rates used were inconsistent in several areas. Some calculations used a nominal rate and others used a real rate. In addition, the rate of inflation was not incorporated. After adjusting the cash flows, I concluded that both proposals had a positive net present value, but that the internal rate of return was higher on proposal A. This means that both projects were profitable, however the internal rate of return on project A showed that Victoria Chemicals would see a faster return on investment than project B. After completing my analysis, I presented my findings to the team members, and after the team’s review of the data and my findings, we interpreted the results into a written report using visual data, leading to an A grade on the assignment.

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