The company should take into cosndieration the expected sales of the new mill machine. At the moment, the forecast includes the possible rise of sales from €400 000 to €600 000 on the second year and €800 000 on the third year. Hence, the steady growth of sale rates gives implications to the faster return on investments. At this point, the company should take into consideration that the sale rates may be even higher compared to the forecasted ones due to the innovative nature of the CNC mill machine and the high interest of potential customers to the new machine.
Also the company should take into consideration the labour costs. In fact, the company can decrease the labour costs due to the automation of manufacturing process. In such a way, revenues of the company will increase, while costs will decrease. Hence, the project may bring considerable benefits to the company.
However, the company should conduct accurate financial analysis to assess its current potential and prospects of the new product. The application of the return on investment is very important technique to assess the economic worth of the proposal. However the return on investment needs the backup including discounted cash flow techniques. The cash flow technique helps to assess liquid financial resources available to the company to fund the project. In fact, the company can face considerable problems in case of shortage of the cash and financial resources to cover funding of the project.
The possible shortage of cash raises the problem of finding sufficient financial resources to cover the costs of the current project. The company could have faced problems because it cannot give up other projects for the sake of the one project solely. In such a situation, the company could face the necessity to raise funds for the project through borrowings or finding business partners to fund the project. Alternatively, the company could find new investors, who could take part in the project and fund the part of the project. Each of the aforementioned approaches to funding the project has its strengths and limitations.
Strategic factors should be taken into consideration and analyzed carefully to assess risks and threats the implementation of the project may confront. The major factor the company should take into consideration is the financial resources available to the company at the moment. In this regard, the company should conduct the analysis of the available resources, including the budget of the project and costs the company is ready to spend on the project.
In addition, the company should assess the risks and expected return on investments. For instance, the company can build the return on investment curve, which helps to assess expected return on investments and risks the company may face. The analysis of the expected return on investments and potential risks the company may face while implementing the project will help to take the right decision whether to introduce the new mill machine or not. In fact, risks associated with the introduction of the new mill machine are relatively low, although the company may suffer from the shortage of financial resources. On the other hand, the expected return on investments is relatively high. Hence, the project is worth implementing but the company should be very careful and minimize potential risks, such as the risk of substitutes. In this regard, the faster the company introduces the new product the better, because, if rivals introduce similar product, the company can hardly gain high return on investments.
The company should also take into consideration taxation since taxes can affect consistently outcomes of the project. As the new machine has nil value for tax purposes, the company can use as a part of research and development project and introduce as an innovative product. However, as sales of the machine start the company will have to pay off taxes which have to be taken into consideration while planning the budget of the project. In fact, taxation is very important in regard to the outcome of the project because the high tax can take a large share of potential benefits of the company making the project unprofitable. However, taking into consideration the innovative nature of the new product, the company can count on loyal fiscal policies, which are normally applied to innovative products which have not been implemented before. At any rate, the company can benefit from low taxation during the first year, when costs of the production and advertising will be the highest. During the years to follow, the company will be able to pay off higher taxes but save costs on advertising, for instance.
Thus, the company can introduce the new mill machine to take a stronger competitive position and to gain considerable benefits. In spite of existing challenges, such as the possible shortage of financial resources, the company can overcome them successfully. For instance, the company can borrow money to introduce the new machine and return them in a long run. Benefits of the new product outweigh costs. Therefore, the company should conduct aggressive advertising campaign during the first year and rip off the profit during the years to follow.