PBIO101 Agricultural Biotechnology

List of benefits and contributions that the proposed laboratory expected to bring to the company:

Benefits:  

It is expected that the proposed laboratory will benefit the company immensely. The expected benefits to the company as a result of the proposed laboratory are listed below:

1. The laboratory will facilitate different services needed by the company including studying effects of drugs and monoclonal antibody productions.
2. Easier for the company to study short term and long term toxicity effects of drugs and chemicals on cell culture.
3. Considering the significance toxicity testing in developing and creating drugs the company would be benefitted immensely with an in-house laboratory to tests toxicity levels of different chemicals and drugs.
4. The overall process of developing and creating drugs will be smooth and faster with the company not needing to outsource different testing of chemicals and drugs.
5. Subsequent to the establishment of the laboratory it is expected that the company’s goodwill will enhance greatly.
6. Availability of in-house testing will facilitate required testing within the company and there will be no need to outsource the tests needed.
7. The company will be able to produce monoclonal antibody needed for different drugs and chemicals.  
8. The cost of conducting tests will be significantly lower with the proposed laboratory.
9. The revenue of the company will increase significantly once the laboratory becomes operational.

Contributions: 

Apart from greatly enhancing the value of the company including its goodwill, the company is expected to achieve significant growth in its revenue as the laboratory is expected to provide large scale testing to the customers. The contributions from the laboratory to the company on the basis of revenue and expenditures are determined and calculated below.   

Calculation of ROI and Net Present Value of the Project: 

Rate of return on investment is calculated below:

 

Thus, ROI of the laboratory is 17.79% as per the above calculation.

Net present value of the laboratory is calculated below:

 

Net present value of the proposed laboratory is Rm 609,954.91.

Workings:

Note:

1. Net cash inflow over the five years from the laboratory is the accumulation of annual net cash inflows from the project as shown in above table under (C).
2. It is assumed that the machine, equipment and furniture in the laboratory will all have a useful life of 5 years. After 5 years the laboratory will have to be rearranged to be useful in the market. Hence; the evaluation of the proposed laboratory done accordingly.
3. Depreciation is calculated using straight line method assuming that all of the assets will have a useful life of five years.
4. Cost of capital is 10% per annum.
5. Income tax has been ignored in the stated computation.