Cango Financial Analysis in Order Research Paper

In a context of a discount rate of 7% and a life project of ten years, cash flows of a negative $4,148,126 for the first year and then positive $3,441,981 for the remaining nine years, the net present value for the new automated storage and retrieval system is of $9,377,897.27. Additionally, the current value of the project cash flows is of $17,081,476.27, which is higher than the initial cost (Investopedia, 2010). This leads to the conclusion that the implementation of the project is recommendable.

From the analysis of the net present value, it is also possible to assess the project from the standpoint of its internal rate of return. The IRR for the new automated storage and retrieval system is of 83%. In optimal conditions, this figure would be compared against the value of another investment project. Yet, in the absence of an alternative, the high value of the IRR is sufficient to reveal the high capability of the new ASRS to generate positive organizational outcomes.

Given the analyses so far conducted, a conclusion is being formed in that the implementation of a new automated storage and retrieval system is a positive investment project for CanGo. All the internal benefits would eventually materialize in a better consolidated competitive position, making the investment even more worthwhile. Today, CanGo is a competitive organization, whose financial ratios -- such as profitability, liquidity, efficiency or debt ratios -- are similar with industry averages.This virtually means that the new automated storage and retrieval system could represent an opportunity for the company to improve its ratios above the industry average.

Yet, in order to ensure its success, several recommendations are noteworthy:

The contraction of an outside expert specialized in change management and integration

The coaching of the employees to accept and operate under the new system

The ongoing control and monitorization in order to identify any operational or otherwise shortages

The pre-establishment of project goals and the continuous efforts in attaining the respective goals

The maintenance of a flexible company so that new improvements can easily be added and so that the company can quickly adapt and respond to emergent challenges.

From a financial standpoint, the company is stable. This generates another point in favor of the ASRS, which would eventually improve the organizational revenues. In terms of sources to be used in the financing of the new automated storage and retrieval system, these should be constituted by internal profits. Given a situation in which the internal funds are insufficient, the company should contract a loan, rather than issue stock. This recommendation translates into a clear necessity for planning and allocating investment budgets on the one hand, and credit reimbursement funds. The direct implication will be the postponing of other investment projects in favor of the ASRS.

References:

2010, NPV Calculator, Investopedia, http://www.investopedia.com/calculator/NetPresentValue.aspx?viewed=1 last accessed on June 4, 2010….....