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Report on the financial evaluation of the investment projects
this report briefly evaluates the financial and non financial merits as well as demerits of both sailing
dinghies and luxury yatches based on their performance
sailing dinghies:
Financial benefits :
Revenue
sailing dinghies has a revenue period of 1 to 5 years which is less compared to revenue
revenue-receiving period of luxury yatches . so since revenue can be earned earlier as
compared to luxury yatches it is bit more profitable .it has a revenue surplus of 6m thereby can be
used for other future benefits
selling price:
sailing dinghies follows a simple design and thereby prices its products at a lower price than
the average industry price of $5000 .this helps in increasing in the customer base and makes
the product more competitive as it follows a cost leadership strategy
payback period :
payback period refers to the time taken to receive the original cash investment .hence lesser
the time more is the project profitable .so payback period of sailing dinghies are 3-5
years which seems to be a profitable project compared to luxury yatches.
Financial drawbacks:
profit margins :
profit margins like gross and operating profit margins are considered to the key performance
indicators of the organisations which contributes mainly to the success of the
organisation . the operating profit and gross profit margin of sailing dinghies are 35% and
62% respectively which is less as compared to luxury yachts . this is mainly because sailing
dinghies are small boats with a simple design, few controls and less technology and its competition
is high(15 manufacturers in Neoland) in the local market since it is priced at a low price. it has huge
market share but market growth is low thereby making it a cash cow.
Non-financial benefit :
economies of scales
since it has a simple design and it is used in calming waters it is very easy to produce at a mass
scale thereby facilitating economies of scale
Increased customers:
since it is priced at a low price it is affordable for most of the families in Neoland .there by
increasing the customers of Xmarine
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Non financial drawback :
Competition :
Sailing dinghies has a huge competition compared to luxury yatch since there is no point of
differentiation in these dinghies every boat looks similar and priced less the industry average price
.though it is affordable by the target audience it leads to excessive competition . threat of new
entrants is high in this case since barriers are low nd there is no competitive advantage
LUXURY YATCH
Finacial benefit:
selling price:
Each and every luxury yatch produced is different from one another so selling price varies
depending upon the design and features so Yachts are priced individually, selling for at least
$400,000.
profit margins :
profit margins like operating profit and gross profit are key performance indicators of the
organisation .luxury yatchs has a operating profit and a gross profit of 62% and 28 %
which is higher has compared to sailing dinghies .
net present value :
net present value is 7m which is sailing dinghies higher than sailing dinghies and the
greater the npv greater profitable the project is
financial drawback
revenue earning period and payback period :
the revenue earning period is 3 years and the pay back is 6 years which is
comparatively greater than sailing dinghies . greater the payback [period and revenue
earning period lesser the profitable it is .this is because since the target audience are
wealthy families the customer base is less as compared to sailing dinghies and
products are priced high depending upon the features .hence competition is quite low
non financial benefit :
lower competition:
since this a luxury yatch and customer base is limited customer base is low as the market
entrants are low since the barriers are high .barriers like cost of capital is high in this case
thereby making the level of competion low in this case .
non financial drawbacks :
economies of scale :
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there is no economies of scale since the cost of production is high and sometimes the
yatch is also difficult to make it varies depending upon the requirements
Conclusion :
in conclusion , xmarine can go with sailing dinghies since they are more profitable as well
as cost efficient and also has a ease of production as compared to luxury yachts.
Consultant
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