Cpr Case Summary

Free cash flows of the project for next five years can be calculated by adding depreciation values and subtracting changes in working capital from net income. In 2010, there will be a cash outflow of $2.2 million as capital expenditure. In 2011, there will be an additional one time cash outflow of $300,000 as an advertising expense. Using net free cash flow values for next five years and discount rate for discounting, NPV for the project comes out to be $2907, 100. The rate of return at which net present value becomes zero i.e.

Team then commenced to apply some of the budgeting concepts discussed in class. First, NPV was calculated using the NPV function in Excel - approximately $419,000. In this calculation we found NPV to be a positive number thus indicating that the Super Project investment should be pursued by General Foods.

Any capital project requests that exceed $100,000 are reviewed by the Capital Expenditure Committee (CEC), a group of top executives, on a monthly basis. Additionally, any project that exceeds $50 million would have to be approved by the board of directors. These meetings last several hours to carefully determine the future cash flows of the company. Projects could range from remodeling, relocation, rebuilding, and closing an existing store to building a new one. Typically it would take 1-2 years of planning before the projects even reach the CEC. Additionally, not all projects with positive NPV’s are accepted. If there was a disagreement between committee members on a particular project the CEO would have the final say on whether a project would be accepted.

Evaluating the risks, calculating the probability of success, and factoring in the projected profit from sales will provide a clearer NPV to be compared with other projects in the

Jeff’s immediate reaction and desire of reassigning Tyler to his new project indicates that not all employees have bought in to or have a functional understanding of the organisation’s matrix

Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.

Whalen Court: This project requires an investment of $119.3 million and has an expected NPV of $25.9 million and 9.8% IRR. Even though this project has the highest NPV, it carries an unusually high investment cost of over 119 million so the return on investment is not as favorable as the other projects. In comparison to the prototype store, Whalen Court expects nearly $100 million more in sales, but since the building must be leased the operating costs are also much higher than the prototype at nearly $90 million more. The Whalen Court project will be in an area with 45 Target stores saturating the market, but with a great opportunity for brand visibility and in a large population center, it will only cannibalize 10% of current Target sales in the future. Whalen Court brings concerns regarding its high risk variance. Based on current estimates, this project requires a 1.9% better than expected sales to have an IRR in line with the prototype store. A 10% sales decline is expected to result in an NPV loss of 64% from its base, dropping the IRR below 9%.

Furthermore, a sensitivity analysis of factors such as the cost of raw materials, selling price per unit and capacity utilization demonstrates that a small change in any one of these variables could have a major impact on the project’s bottom line. In Appendix B, I examine a scenario in which the selling price per unit decreases by 1% and the cost of raw materials per unit increases by 1% at the outset of the project. In this scenario, the resulting NPV changes from a positive $5.4 million to a loss of $666,000, and the IRR falls below the discount rate to 9.15%. This, to me, reveals that the potential upside of this project is not large enough to account for discrepancies due to imprecise projections, flawed assumptions, or unforeseen risks.

CPR stands for cardiopulmonary resuscitation. To perform CPR correctly you need to do 30 chest compressions, then 2 breaths into the mouth, and repeat until a paramedic arrives or until an AED (automated external defibrillator) arrives.

The following section will show the ratios and percentages figured by using these two companies’ financial statements. A comparison will be used to compare the companies to one another. People will always needs cars to get around whether it’s for education, work or tourism. By comparing these companies we will know which company maybe the best to invest and to determine which companies will survive in the future. Take a look at Table 1 below as it provides a full listing of

1. How should PDVSA finance the development of the Orinoco Basin? Can you define project finance? Is Petrozuata a project? What are the costs and benefits of using project finance instead of the traditional (debt) finance – as Mr. Bustillos said, PDVSA could have finance the debt internally (p.7 of the case)?

The present value of the net incremental cash flows, totaling $5,740K, is added to the present value of the Capital Cost Allowance (CCA) tax shield, provided by the Plant and Equipment of $599K, to arrive at the project’s NPV of $6,339K. (Please refer to Exhibit 4 and 5 for assumptions and detailed NPV calculations.) This high positive NPV means that the project will add a significant amount of value to FMI. In addition, using the incremental cash flows (excluding CCA) generated by the NPV calculation, we calculated the project’s IRR to be 28%. This means that the project will generate a higher rate of return than the company’s cost of capital of 10.05%. This is also a positive indication that the company should undertake the project.

A proposed investment has a cost of $5000. It will have a life of 3 years. The cost will be depreciated straight-line to a book salvage value of $2000, and will be worth $2500 at the end of the project’s economic life. Year-end sales will be $3200 per year and Year-end costs will be $200 per year. It requires an initial investment in net working capital of $500. The NWC will be recovered at the end of the project. The appropriate discount rate is 10%, and the corporate tax rate is 30%.

Construction projects contain a high level of complicated procurement processes. Not only the revenue or profit is critical in the construction industry, but market intelligence and construction procurement knowledge are also important. The bidding process in the construction industry is illustrated by many different involved parties including the architectural and engineering firms, client, general contractors, material suppliers, specialized contractors, manufacturers, etc. (Halaris, 2001). Preparing proposed documents, appraising bids, and awarding the contract to the winner of the bid are among the major duties of the client (Gokhan et al, 2006).

Capital budgeting is done with projected sales values. These values do not represent the actual sales volume more often than not the protracted values are usually more than the actual values of sales volume. This is one of the areas that raises concern in capital budgeting. The reason behind this is that both the NPV and IRR cannot be accurately calculated. For instance in year9 the projected sales figures were 3510 units but the actual unit sales amounted to 3400 units. Total sales amounted to $5083000 for Carbonlite bikes. In year10 the projected sales units were 3660 units but the actual sales units amounted to 4000 units giving a total sales figure of $5980000 and for year 11 the sales forecasts were 3800 units and the actual sales amounted to $4485000 if the sales projection were used for year 9 the sales amount would have been $5247450, for year 10 the sales volume would have been $5471700 and lastly for year 11 the sales would be $5681000. These figures would completely alter the whole capital budgeting structure hence it is advisable to use actual sales to compute for capital budgeting structure. From the competition Bikes, Inc. Budgeted Contribution Margin Income statement for year 9 if the projected sales figures were used the operating income would have been $79962 but when we use the real sales figures we get the operating income amount to be $34142 giving rise to a difference of $45820 a considerable amount that would blow the budgeting