The Net Value Calculation

275 Words Jan 13th, 2018 1 Page
In this case, fixed costs are not incremental; only revenue and variable costs will be taken into consideration. Some of the information was provided, and some of the information was not. The spreadsheet includes the information that was provided. When the missing information is input, the spreadsheet will allow for proper comparison between the new manufacturing process and the old one. The idea is to compare which of these two options will deliver more cash flow over the life of the project to the company, adjusted for the discount rate. The missing data that needs to be filled in is as follows:

The discount rate. This is the company's cost of capital, usually. This is the rate at which the future cash flows will be discounted to present dollars.

The sales and price of the current racquetballs. These are important to project how the company will perform in the future if it does nothing. The sales will be quite a bit lower than the new option will provide, because the selling price is going to be much higher. The demand will change depending on the selling price as well, so that needs to be taken into account when figuring out the sales and price levels sales is dependent on price. For this example, competitors are not expected to change their prices.

The sales volume of the new process. The selling price of $0.65 has been selected for this example, and we just need to know how many racquetballs…
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