New Tennis Ball Company Evaluation Essay

Introduction

Analysis data allows one to clean, inspect, remodel and transform data in a bid to reach a predetermined conclusion for a give situation. Hence, data analysis is important in that it enables a person to arrive at conclusion, prove a hypothesis and draw meaning from the data context. For the analysis of whether the investment in a New Tennis Ball Company will be a plausible and profitable business, five different tables were drawn.

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The first table was used to calculate the inputs for the new business venture. The second table was used to calculate the income, expenses, profit, net present value and discounted cash flows over a period of 20 years from 2018 through 2028. The one-way data table shows the variance of Net Present Value with retail price as shown below.

The second one-way data table shows the relationship between retail price and the market price as shown below.

The two-way data table shows the relationship between the discount rate and the Net Present Value as shown in the screenshot below.

The graph of unit sales vs revenue vs total cost is as shown below. The graph shows an increment of unit sales, revenue, and total cost. It is projected that initially, there will be a sharp increase in unit sales, revenue, and total sales, until 2019 when they will start to increase gradually. Moreover, the unit sales are the highest, followed by revenue and the lowest being total cost. The graph is useful in determining the change in the three variables, unit sales, revenue, and total cost.

The optimal price for the new balls if the minimum retail price to the consumer that company A would consider is PS0.80 would be PS20,484,973.63 and the resultant market share would be 90.00%.

Calculating cash flows are of great importance to any investor since it aids in determining whether the business will be able to obtain new finances. On the other hand, if a possibility of insolvency is noticed, the investor is able to plan for it. Hence, with cash flows forecasts, the investor is able to identify the shortfalls in the future cash balances. It also gauges the business on whether it can afford to sustain employees and suppliers. In addition to instilling discipline in financial management, the ash flow forecast allows the investor to identify possible problems in customer payments and avert the situation early. For these reasons, the cash flows were calculated to determine if the New Tennis Ball Business will thrive in the market. From the calculations performed in the Excel spreadsheet, this recommendation for New Tennis Ball Business is the best. This is because, although the first cash flows were negative during the early year, it was positive in all the other years. Additionally, the discounted cash flows show a proportional increase as the business becomes older. The business is hence sustainable in future.

Conclusion

Calculating the discount rate and the Net Present Value is very important in determining the productivity and possibility of a viable investment. It is hence a tool that is used to determine if the business will be profitable. If the Net Present Value is negative, then the probable outcomes of investment are a loss. However, if the Net Present Value is positive, the projected earnings are more than the expected costs and as such the investment will be productive and profitable. At different retail prices, the NPV was calculated and found to be positive. At a retail price of $0.80, the NPV was $7,757,925.52 and at a retail price of $1.00, the NPV was $25,320,586.07. Additionally, at different retail price and discount rate, the values of NPV was found to positive. Based on this, the New Tennis Ball Business will be profitable.