Essay about Whirlpool Europe Analysis

When the discount rate increases from 15% to 40%, the company faces a 37.3% drop in its total value. The loss will be $5,609,132. the largest difference rate comes from the silver segment. Firstly, the silver segment has the most significant amount of customers. The requirement of being a silver customer is small ( fly with the Northern Aero at least one time). Secondly, each year some of the customers will degrade from the platinum or gold segment to the silver segment. Due to the

New Contribution Margin = New Price per unit – Variable cost per unit =$8.5-$2.5 =$6

The third scenario was ignoring the option to invest in the second-generation project and selling the equipment in year 2. We evaluated this option as a put option. First, we calculated the probabilities for going up and down based on the assumption of a risk neutral word. As a result, the probability of going upward is calculated as 0.3375 and downward probability is 0.6625. In order to determine the present value of all the sequence cash flow at the end of year 2, we calculated the upside change rate and downside change rate as 64.87% and -39.35%, respectfully. The next step is to analyze the option value by using the “Binomial Tree” method. In order to determine the present value of all the subsequence cash flow at the end of year 2, we calculated the cash flow at each node on the tree, until 2006. We discounted all the cash flow at the risk free rate at 10%. The End of Year NPV of all the subsequence cash flow at Year 2 is calculated as $7,571,752, and the selling price of the equipment at end of 2 is $4,000,000, which is the salvage value. We found the NPV of selling the machine at end of Year 2 to be -$2,951,861 as of Year 0, which is negative. The APV of the project after adding the option turned out to be -$6,321,932. This negative APV suggest that the

4. We estimated the project net present value to be -$19,125,000 without tweaking any of the financial assumptions in the capital request form. So to make the net present value positive we would have to change something. We first started by adding 10% to the utilization for every year. This alone didn’t make a huge difference so we had to additionally lower the hourly wage to $18.19/hr. This gave us a net present value of about $35,000. This seems unreasonable or at the very least unfair to lower each worker’s hourly wage while increasing the workload. The second way we tried to get the net present value positive was by just decreasing the hourly wage of each employee from $20/hr to $16.02/hr. This gave us a net present value of about $33,000. This seems like a more reasonable solution, but it is dangerous because it could cause workers to quit. Therefore we wouldn’t recommend this project. Both solutions that lead to a positive net present value are too extreme and risky. Also this only leads to a positive net present value, not an extremely profitable one. This project shouldn’t be undertaken.

9. You are analyzing the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?

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%?

If the stock is trading at $55 in 3 months, what will be the payoff of the call?

18) If variable costs increase, but price and fixed costs are held constant, the break-even point will decrease.

7. You are evaluating a project for The Ultimate recreational tennis racket. You estimate the sales price of The Ultimate to be $400 and sales volume to be 1,000 units in year 1, 1,250 units in year 2, and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000, which is depreciated

Janine expects the system will take one full year to implement before any benefits are shown.

If fixed expense were 600,000 in year 1 and variable costs would remain at 50% for all four years,

B) What is the project’s net present value (NPV)? Explain the meaning of the NPV.

The numbers above for the best and worst case scenarios are based off of the judgement. If the product were highly successful, then the combination of a high sales price, low production costs, and high unit sales would result in a very high NPV. However, if things turn out badly, then the NPV would be a negative. The project’s expected NPV is $12 million, the standard deviation is $11 million and the coefficient of variation is 0.88. Assume that Conch Republic’ average project has a coefficient of variation in the range of 0.3 - 0.6, so 0.88 indicates that this project is in high risk. Since the project is judged to have above-average risk, so a higher discount rate should be used to find its NPV. If Conch adds 3 percent to the corporate WACC

Based on the sensitivity analysis made for option two which is cancelling the trip at Manaus it can be concluded that the final decision will be impacted just if the costs increase by more than 25% any change lower than 25% will

If cost of capital was at %12 this would result in the net present value