Pathrite Systems Analysis

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.

Based on the table, the largest changes in NPV are due to changes in the annual cost savings. On the surface, the NPV is more sensitive to changes in cost savings than the initial investment based on the assumed range of changes. In fairness, the variation in annual cash flows of 40% is over two times larger than the variation allowed for in the initial investments (15%). A more meaningful comparison could be obtained by adjusting the two factors

2. Net Present Value – Secondly, Peter needs to investigate the Net Present Value (NPV) of each project scenario, i.e. job type, gross margin, and # new diamonds drills purchased. The NPV will measure the variance of the present value of cash outflow (drilling equipment investment) versus the future value of cash inflows (future profits), at the benchmark hurdle rate of 20%. A positive NPV associated with the investment means that the investment should be undertaken as it exceeds the minimum rate of return. A higher NPV determines which project scenario will have the highest return on cash flow, hence determining the most profitable investment in terms of present money value.

M2 through M8 by the probability values calculated in column I, that is, formulas for

13. For the scores (3.0, 3.4, 2.6, 3.3, 3.5, 3.2): N = 6; Sum = 19; Mean = Sum/N = 19/6 = 3.17; Median = (2.6+3.3)/2 = 2.95; Sum of Squared Deviations = (3-3.17)2+(3.4-3.17)2+(2.6-3.17)2+(3.3-3.17)2+(3.5-3.17)2+(3.2-3.17)2 = 0.533; SD2 = SS/N = 0.533/6 = 0.089; SD = 0.089 = 0.298.

For years 1-5, we then calculated the Net Cash Flow by finding the difference between the recurring benefits and costs. We found that for each year the estimated costs of implementing telework came out to be $112100 and the benefits were $399400, meaning the Net Cash Flow is $287300. We used a Cost of Capital of 9% and then calculated the Net Present Value by using the table and multiplying each year’s net cash flow by the factor found in the table. Our calculated NPV came out to be $1130015.6. Because our NPV came out to be a positive number, it is an indicator that we should go forward with implementing telecommuting in the company. Next, we calculated the Internal Rate of Return through the formula in excel, which was 142%. The internal rate of return tells us that when the net present value is 0, what the rate of return is. With our calculated internal rate of return of, it makes it seem that this is an very attractive project to invest in and it seems that it will be beneficial to the company in generating

After calculating the Total Cash Flow for all three scenarios, the Internal Rate of Return (IRR) and Net Present Value (NPV) for the project can be calculated as well. See Question 3 for details regarding WACC calculation. The IRR and NPV for each scenario are shown in Table 4 below:

The change in incremental cash flow can be examined through looking at the factors causing change

4. The decision rule for net present value is to: C. Accept all projects with positive net present values

NPV = [Net period cash flow / (1 + r) nth power ] – Initial Investment (where r is the int. rate used)

The net present value (NPV) method is used to assess a capital investment project, which evaluates the difference between its cost and the present value of its expected cash flows (Parinno & Kidwell, 2009). The basic concept of NPV serves as a highly recommended capital budgeting technique and is regarded as one of the main functions in corporate finance. Furthermore, NPV is often associated with a capital

One of the biggest decisions any organization has to make is related in one way or another to the projects they choose to undertake. There are many factors to be considered before an organization decides to take up any project brought forward for the business. The most viable option needs to be chosen wisely with the goals and requirements of the organization in mind. Choosing a project using the right method is therefore of utmost importance and it will therefore determine the strategy to be used to carry out the project. There are various methods that an organization can use to select a project and each selection method is different for different organizations. These methods include the calculation of Net Present Value so that all the proposed projects in the project portfolio management system can be compared.

The disadvantage associated with this method again is its relativity. A project can have same profitability index with different investments and vast difference in absolute dollar return. NPV has an upper hand in this case.

b) Calculate the net present value (NPV) of each project, assuming that the firm has a cost of capital equal

An investment should be accepted if the NPV is positive and rejected if it is negative. In our case it is positive, which means the