Sun View Valley Corporation ( Svvc )

2069 Words Mar 31st, 2015 9 Pages
School of Business & Economics
Master of Business Administration
BUSN-6020 - Corporate Finance (Winter 2015) Case Study Assignment 2: Sun View Valley Corporation (SVVC)

Prepared for:
Dr. Raymond Cox

Contents
Executive Summary 2
Question 1 – Methods Used 3
Payback Method 3
Discounted Payback 3
ARR Method (AAR, ROI) 4
Profitability Index (PI) or Benefit / Cost Ratio 4
Internal Rate of Return (IRR) 5
Modified Internal Rate of Return (MIRR) 5
Equivalent Annual Annuity 5
Question 2 - Sensitivity Analysis 6 o Selling Price 7 o Variable Cost 7 o Fixed Cost 7 o Investment Cost 7 o Net Working Capital 7 o Discount Rate 7
Question 3 - If the abandonment value is $9 million 8
Question 4 - Should SVVC make this investment? 8
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There are also no external economic considerations made for the purposes of this project. SVVC is considering the VVP solely as a mutually exclusive option with no other alternatives. No capital rationing has been considered in this project and this project has been analyzed with the Stand Alone Principle in mind.

Question 1 – Methods Used to evaluate the investment using the payback, discounted payback, ARR, NPV, PI, IRR, MIRR and equivalent annual annuity methods.
When we evaluate the project using all the methods as outlined below, the picture for SVVC potential investment in VVP becomes clearer. By using multiple methods for the project, we are assessing the project from many financial perspectives to mitigate the potential for error related to application of just one DCF. The differences in evaluation range significantly and are summarized below; all of them are positive outcomes pointing to the implementation of the project.
The most important outcome for SVVC is to maximize the profits for the time period they anticipate running this project. Using multiple methods allows SVVC to generate a range of possible outcomes based on the criteria that are required by each, the methods are as follows:
Payback Method

Similar to a breakeven (in accounting terms not economic terms) using the payback method, SVVC expects to see positive returns within 1.44 years. It should be noted that there

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