Financial Analysis of Development Scenarios for the Startup company

Welcome to my project!

Scenarios

• Scenario 1: Build a Factory
• Scenario 2: Marketing Campaign and New Electronic Product
• Time Frame for Analysis: 7 Years (2018-2024)

Methodology

The analysis compares the two projects using several key financial metrics:

• Initial and Opportunity Costs: Upfront capital and missed opportunity costs for each scenario.
• Net Present Value (NPV): Measures profitability by comparing future cash flows to the initial investment.
• Payback Period: Time taken to recover the initial investment through cash inflows.
• Internal Rate of Return (IRR): Annualized return over the project’s lifecycle, assessing investment attractiveness.
• Return on Investment (ROI): Overall return relative to the initial project cost.
• Weighted Average Cost of Capital (WACC): Evaluates the cost of financing the project.
• EURO STOXX 50: Serves as a market benchmark for comparison.

Key Findings

• Initial and Opportunity Costs:

  • Scenario 1: Initial Cost €5.4M, Opportunity Cost €8.3M
  • Scenario 2: Initial Cost €8.0M, Opportunity Cost €12.2M

• Net Present Value (NPV):

  • Scenario 1: €1.5M
  • Scenario 2: €2.3M

• Payback Period:

  • Scenario 1: 4.9 years
  • Scenario 2: 4.7 years

• Internal Rate of Return (IRR):

  • Scenario 1: 16.9%
  • Scenario 2: 14.1%

• Return on Investment (ROI):

  • Scenario 1: 9.3%
  • Scenario 2: 8.4%

Conclusions

• Investment Decision:
  Choose Scenario 1 for higher returns with lower initial investment. Choose Scenario 2 if willing to invest more upfront for potentially higher long-term profit.

• Profitability:
  While Scenario 2 has a higher NPV, Scenario 1 demonstrates superior efficiency with a higher IRR and ROI, as well as a lower initial cost.

• Risk vs. Return: Scenario 1 offers better returns (higher IRR and ROI). Scenario 2's higher costs increase investment risk without proportionately higher returns.