Project Management Accounting: Budgeting, Tracking, and Reporting Costs and Profitability, Second Edition

Review Project Financials

According to Pontrelli Recycling, Inc.'s pro forma financial statement, it appears that the technology acquisition project will be profitable for the company. Before the company makes a final decision, it must also consider the actual cost of the project as compared to the additional revenue that will flow into the company as a result of the project.

If we do a comparison of net income between a baseline (continued 5 percent growth over 10 years) and the assumptions provided by this project, we can see that there is significant added revenue with the project. However, Pontrelli Recycling, Inc. needs to determine whether this added revenue is worth more to the company than not doing the project and continuing with the baseline revenue calculations.

In Exhibit 7.9 we can see that the cumulative value of projected baseline revenues over a 10-year period is $16,686,882, assuming that revenues continue to grow at 5 percent annually and Pontrelli Recycling, Inc. maintains market share. We can also see that according to the pro forma income estimates, if the project is undertaken, the cumulative revenues would be $51,988,253, a significant difference.

Exhibit 7.9 Projected Income

Total Net Income 2009–2016
Net Income	NPV
Baseline (5%)	$16,686,882	$8,534,627
Project	$51,988,253	$40,052,357
Additional Net Income	$31,517,729
IRR	30.64%

As mentioned in Chapter 6, net present value (NPV) represents the value today of future cash flows. If we ...