Stategic Management

Now we want to examine the analysis business report concerning the cost of capital that has been increased at 28% in accordance with the Net Present Value which is $500,000 the question being would still be worth it to make the investment to the company (Needles, 2010). While at the same time the internal rate of return is still at 21% which is lower than the 25% in the expenditures. In reflection of these calculations the investment would not

"a. If each project's cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what

7) See Table 1 NPV=42,318.71 IRR = 14% MIRR = 12% Payback period= 2.93 years. Yes the project should be undertaken.

2. The current NPV is negative. One way to save money would be to reduce consulting costs. Please set the average consulting cost per month in cell b33 to $5000. At what discount rate is the NPV for the project 0?_____0.026____

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

The senior management of Company A employ you to advise them on the cost of capital the company should use to calculate net present value and decide whether or not to undertake a new investment project. You may assume that the new project is comparable to the average of the company’s existing projects in all respects.

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.

later in the project life. With a NPV of less than -$810,000, Scenario 6 is the project with the

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

3. Estimate the project’s NPV. Would you recommend that Tucker Hansson proceed with the investment?

2. Compute the NPV of both projects. Which would you recommend? What if they are not mutually exclusive?

1.) What are the recommended percentages of each project that HVC should fund and the net present value of the total investment?

Overall, the ranking lists shown that the project of Strategic Acquisition should be accept by the board directors, because it has a highest IRR and NPV, the second high Profitability Index and 5 years payback, although the initial investment is really big but still the return is worse to do. The total investment of this project will be EUR55 million. The second recommend project will be the project of Southward Expansion. This project has a high IRR and NPV, the initial investment is EUR30 million, it is the 3rd in the ranking list of Project Spending and it is the 2nd in the ranking list of Project Net Cash Flow about EUR56.25 million, The payback is 5 years too. Because the project of Effuent-Water Treatment at Four Plants is highly recommend so right now we have total capital budget EUR91 million. Based on all the ranking list, the project of the Artificial Sweetener will be the last recommendation for the new year capital budget. This project has the 3rd highest IRR and NPV, the return is the 4th in the list about EUR42.75 million and payback is also 5 years. They expenditure for this project is EUR27 million. So the total budget will be EUR118 million include Strategic Acquisition, Southward Expansion, Artificial Sweetener and Effuent-Water Treatment at Four Plants.

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.

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.