Speaker Notes

Introduction

This presentation covers the current and future direction of the e-reader market. And the major players and their respective market share in the global industry.

In the second part of the presentation, capital budgeting methods including NPV, IRR, Payback period and profitability Index is calculated to evaluate the feasibility of the project.

The third part of the presentation performs the sensitivity analysis taking account of five different scenarios.



Purpose

The purpose of this presentation is to present the findings and analysis of the Enhanced E-Reader Project to the senior management of the company and to seek financial support for the project.

Market Analysis

EBook websites are focusing on making an increased number of titles available in an electronic format, along with enhanced consumer experience through integrated stores.

This chart shows the periodic increase in the units and $ sales of the e-reader. In 2017, it is expected that about 90 million units will be sold.

Currently, computer is mostly used to read e-books. However, the gap between e-reader and mobile phones is very close and it is expected that e-readers due to its distinctive features, will beat the mobile phones.

UK E-Reader Market

The country now also benefits with respect to the number of English language titles available in the electronic books format; the Kindle makes available more

This factor has affected the affordability of eBooks in the UK compared to other regions, where they are available at 15-20% lower price compared to the hardcopy versions, and affordability becomes the major factor for consumers preferring eBooks than 200,000 English eBooks in addition to 85 international and US newspapers and magazines.

The survey conducted in 2010 shows the future market share of the big brands of the e-reader devices. Apple ipad has the largest market with 40% share. Amazon Kindle is the second biggest brand with 28%. While Barnes & Noble Nook surpasses the Sony reader by 5% gap.

Capital Budgeting

Discount rate

10%

Year

0

1

2

3

4

5

6

Net Cash flow

(10.00)

($13.2)

($0.6)

$1.0

$4.2

$7.4

$8.7

Discount Factor

1

1.1

1.21

1.33

1.46

1.61

1.77

Discounted CF

-£ 10.00

($12)

($0)

$1

$3

$5

$5 £ 0.65

Investment Measures

NPV =

($12.17)

IRR =

-2.41%

The NPV of the Enhanced E-Reader Project in negative that is -$12.17, which indicates that the project in not feasible for investment.

The IRR also depicts the similar result with -2.41 %.

Payback Period

Year

0

1

2

3

4

5

6

7

Net Cash flow

(10.00)

($13.2)

($0.6)

$1.0

$4.2

$7.4

$8.7

$2.5

Cumulative Cash flow

(10.00)

(23.16)

(23.76)

(22.76)

(18.56)

(11.16)

(2.48)

0.02

Payback period =

6 + (2.48/2.5)

6.99

=

6 years 11 months

The Payback Period of the Enhanced E-Reader Project is not under 6 years. However, if we assume the 7th year minimum net cash flow of $ 2.5, the payback period will be little less than 7 years, that is 6 years and 11 months.

Profitability Index (PI) =

PV of Future Cash Flows

=

£ 0.65

=

0.065

Investment

10

The profitability Index of the Enhanced E-Reader project shows that the project's profitability is not appropriate. An index less than 1.0 means that the project failed to achieve the desired goal.

Sensitivity Analysis

The most critical variables on which we have less control is the sales and the discount rate. Based on this, we have considered these 5 ...