Essay about Whirlpool Europe Analysis

704 Words Oct 25th, 2014 3 Pages
Whirlpool Europe Analysis

Please answer the following question about the NPV analysis:

1. What are the key assumptions of this analysis?

Average salary per employee is equal to 100k and a number of participating employees which has 50 employees per each of the 4 waves. The consulting cost is that 15400 per month._

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____

3. Returning the consulting cost to $15,400 per month, at the original discount rate of .09, what is the impact on NPV if you double the number of employees participating in the
…show more content…
Returning the cost factor to 100%, what happens to the value of the option if the risk free interest rate doubles to 8%?

_It increases to 4495834_______

11. Returning the risk free rate to 4%, what happens to the value of the option if the Whirlpool’s cost of capital goes from 9% to 15%?

It decreases to 2,812,116______

12. Please return the cost of capital to 9%. Sigma squared is the variance in the rate of return of the project. The calculations for the variance are in the first table of worksheet 2. Determining sigma squared is one of the most challenging tasks in calculating the value of a real option. In this example, we suggest asking managers for their best and worst case estimates of the benefits, given the expected benefits taken from worksheet 1. Just above the table, there is a percentage number for the range surrounding the expected returns, which starts at 20%. This says that the worst estimate is 80% of the expected, and the best is 120% of the expected.

a. What happens to the value of the option if you change the range from 20% to 10%?

It decreases to 1,432,615.

b. What happens to the value of the option if you change it to 30%?

_It increases to 5,822,517.

c. What do these changes say about the sensitivity of OPM and its applicability to IT projects?
The value of the option is so sensitivity about the ranges of returns. When the range decreases by 10%, the value decreases by 60.36% .When the range increases

More about Essay about Whirlpool Europe Analysis

Open Document