Deer Valley Lodge Project Essay

10. What is the net present value (NPV) of a long-term investment project? Describe how managers use NPVs when evaluating capital budget proposals.

NPV analysis uses future cash flows to estimate the value that a project could add to a firm’s shareholders. A company director or shareholders can be clearly provided the present value of a long-term project by this approach. By estimating a project’s NPV, we can see whether the project is profitable. Despite NPV analysis is only based on financial aspects and it ignore non-financial information such as brand loyalty, brand goodwill and other intangible assets, NPV analysis is still the most popular way evaluate a project by companies.

As a building principal, list and explain three major factors that would guide your budget decisions?

As early as 1800, reports of the Franklin area and its plentiful resources were recorded by several American and European Explorers and fur trappers; men such as John Jacob Astor and John C. Fremont, while traveling through the valley wrote very highly of the area’s potential. On passing through Cache Valley, John C. Fremont remarked that “a civilized settlement would be of great value here, and horses and cattle would do well where grass and salt so much abound.” It wasn’t until the late 1840’s when the valley became a potential area for settlement. Despite the various reports on the potential of Cache Valley and the Franklin area. In 1847, after hearing several reports on the prospects and benefits of Cache Valley from fur trappers

a. The product is identical (ie, aluminum), all the companies procure the same resources to make production with same production line and process. The firms only differentiate in terms of controlling and lowering the variable cost in order to make a profit as a price-takers. Pricing is somehow fix in global level as aluminum is openly traded in the financial market.

| |collection of data, the evaluation of projects, and the reevaluation of prior decisions. |

The critique committee has recommended that no action be taken at the current time in regards to integrating or re-fabricating our information system to incorporate a Customer Relationship Management (CRM) strategy. Their reasoning was the following:

Account for time. Time is money. We prefer to receive cash sooner rather than later. Use net present value as a technique to summarize the quantitative attractiveness of the project. Quite simply, NPV can be interpreted as the amount by which the market

Net Present Value (NPV) calculates the sum of discounted future cash flows and subtracting that amount with the initial investment of the project. If the NPV of a project results in a positive number, the project should be undertaken. It is the most widely used method of capital budgeting. While discount rate used in NPV is typically the organization’s WACC, higher risk projects would not be factored in into the calculation. In this case, higher discount rate should be used. An example of this is when the project to be undertaken happens to be an international project where the country risk is high. Therefore, NPV is usually used to determine if a project will add value to the company. Another disadvantage of NPV method is that it is fairly complex compared to the other methods discussed earlier.

In the case of Worldwide Paper Company we performed calculations to decide whether they should accept a new project or not. We calculated their net income and their cash flows for this project (See Table 1.6 and 1.5). We computed WPC’s weighted average cost of capital as 9.87%. We then used the cash flows to calculate the company’s NPV. We first calculated the NPV by using the 15% discount rate; by using that number we calculated a negative NPV of $2,162,760. We determined that the discount rate of 15% was out dated and insufficient. To calculate a more accurate NPV for the project, we decided to use the rate of 9.87% that we computed. Using this number we got the NPV of $577,069. With the NPV of $577,069 our conclusion is to accept this

Without the ability to rank the projects based off of cash flows solely, we had to use some analytical criteria as a capital budgeting analyst to provide some thorough support and reasoning for how we ranked the four best projects. In this case we are only using quantitative considerations that we deem to be relevant and no other project characteristics are deciding factors in our selection of the best four projects. When coming up with our calculations to rank

4. Based on the information provided in the case, our group calculated the NPV for the project under both tax environment and tax-free condition, respectively, by using the excel spreadsheet and the NPV function. (For a detailed calculation of NPV, please refer to Appendix Under 15-yr.) According to our calculation, we have the following results: In the first case scenario, which the firm is in a tax environment (35% income tax), the NPV of the project equals to -$6,366,054.53

One of the projects was the 156,000 square foot Huntsman Cancer Center Phase IIB expansion. What was the impact on that project of having improved financial controls and better

The cash flows from a project must be reduced by the amount of taxation payable on these cash flows. However, the taxation savings arising from the capital allowances (annual writing down allowances) reduce the taxation payments. Because taxation payments do not occur at the same time as the associated cash flows, the precise timing of the taxation payments should be identified to calculate NPV.

This analysis will determine whether or not the project is worth pursuing using a net present value (NPV) approach.