Nova Western Case Study

To make the most informed decision the IRRs and payback periods of the projects should be compared in conjunction with the NPVs of the two projects. The NPV analysis of the two projects under consideration indicates that the MMDC Project is the better of the two projects.

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.

Finally, in order to complete a more accurate comparison between the two projects, we utilized the EANPV as the deciding factor. Under current accepted financial practice, NPV is generally considered the most accurate method of predicting the performance of a potential project. The duration of the projects is different, one lasts four years and one lasts six years. To account for the variation in time frames for the projects and to further refine our selection we calculated the EANPV to compare performance on a yearly basis.

The first project proposal is Match My Doll Clothing line expansion consisted of expanding matching doll and child’s clothing and accessories. The second project proposal is Design Your Own Doll by creating customizable “one of a kind” doll features through the company’s website. The project selection criteria would base on quantitative and qualitative analysis. The quantitative analysis would base on the evaluation of discounting cash flow forecasts to determining the Net Present Value (NPV), Internal Rate of Return (IRR), and the Payback period of each proposed project. The qualitative analysis would include the potential project value of the company’s overall strategy, innovation, key project risks, and the project interdependencies to the whole company.

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

A company the size of the Global Infrastructure Group has many options when considering a project selection process. Any project taken on by the company must align with its goal and corporate strategy. Morris and Jamieson (2004) and Dey (2006) argue that project portfolio management is a “bridge between strategy and operation” and enables organizations to transform the organization's vision into realities or successfully implement their corporate strategies (Khalili-Damghani & Tavana, 2014). In project selection, the company’s senior managers must establish strategic intent. Strategic intent will contain the company’s objectives and should result in a strategy map. Goals should be clear, realistic and measurable. Goals should also have an end state e.g. President Kennedy established a goal of landing a man on the moon within a decade. The Global Infrastructure Group’s senior managers should be leading by establishing a clear strategy and obtainable goals to get all projects focused on meeting these goals by aligning to the organization’s strategy. Once strategy and goals are defined, those involved in the project selection process should consider how the proposed project will align with the goals and strategy. Factors they should consider

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.

The four measures were net present value (NPV), internal rate of return (IRR), the payback period and increases in earnings per share (EPS). Other strategic factors must be considered that are not reflected in the financial tests. James Fawn and his ICG analyst team must decide which project is the best value for the short-term and the long-term. Utilizing these financial hurdles and contemplating other strategic factors, Victoria Chemicals will choose the project that will give the firm the most value.

The use of an accounting rate of return also underscores a project 's true future profitability because returns are calculated from accounting statements that list items at book or historical values and are, thus, backward-looking. According to the ARR, cash flows are positive due to the way the return has been tabulated with regard to returns on funds employed. The Payback Period technique also reflects that the project is positive and that initial expenses will be retrieved in approximately 7 years. However, the Payback method treats all cash flows as if they are received in the same period, i.e. cash flows in period 2 are treated the same as cash flows received in period 8. Clearly, it ignores the time value of money and is not the best method employed. Conversely, the IRR and NPV methods reflect that The Super Project is unattractive. IRR calculated is less then the 10% cost of capital (tax tabulated was 48%). NPV calculations were also negative. We accept the NPV method as the optimal capital budgeting technique and use its outcome to provide the overall evidence for our final decision on The Super Project. In this case IRR provided the same rejection result; therefore, it too proved its usefulness. Despite that, IRR is not the most favorable method because it can provide false results in the case where multiple negative

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

Question 1. What project selection method described in the chapter will ABI probably employ for this proposal? Answer According to the description, the project selection method is profitability of numeric model. We might see the points from the business strategy 1) Bid only on good margin products that have the potential for maintaining their margins over a long term. 2) Pursue only new products. 3) Utilize the most advanced technology in new projects. “ project champion” approach to innovation and creativity. no more than 480 employees. 4) Foster the

3. The NPV method is better because it shows the size of the project so you can see how much value a project has not just a percentage. You could have a higher percentage but a much lower value and you would still go for the lower percentage.

All of the 11 projects are primarily ranked based on quantitative measurements. We have to also take into consideration of other quantitative aspects like length of the project, initial investment and anticipated payback period. Moreover, this

The following paper analyzes a project from financial perspectives using the capital budgeting techniques like Net Present Value (NPV) and Internal Rate of Return (IRR).