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Madison Products

In:

Submitted By ohagan2
Words 1384
Pages 6
To: Lois McGonagle
Re: Proposed Capital Investment and Capital Structure of Madison Products Ltd.
Date: 09/01/2013

I was asked to draft you a short report detailing the proposed capital investment and review the current capital structure of the firm. I will start out by looking at the proposed new product line of luggage and travel goods, I will then go on to study the Capital Structure of the firm and give any suggestions to you that I might have to help improve it.

(1) Proposed Capital Investment
The capital investment I was asked to evaluate was the proposed investment into a new product by the company. To help make this decision I used both the NPV and IRR methods which are used in capital budgeting to analyse the profitability of an investment. The NPV gave me a positive Net Present Value of €1,037,312 (Appendix 1) after using a discount rate of the WACC calculated of 12.79% for companies in this industry. Since this project gives us a very high NPV this project should be accepted under this method.
I also calculated the Internal Rate of return for this product to confirm what the NPV has told us, to accept the project. IRR would generally be used when comparing different projects against each other with the highest being the most desirable. However in this case since there is just one project we will just want to see a high IRR rate as possible. The IRR calculated for this investment is 31.56% (Appendix 1). This is to be considered as a very high IRR and so if we were basing our decision on IRR alone we would also accept the project.
Another method used in decision making is the Payback Method however as in this case since there is no ideal year on return it is not need in this to help with our decision.

While this project should be accepted based on the calculations, there are a number of areas that may need further investigation. The positive

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