Wriston Manufacturing Corporation

After evaluating the Super Project for General Foods, the two main things that management needed to address were the relevant incremental and non-incremental cash flows discussed below and incorporate the NPV and the net cash flows (yearly) to make a decision on whether to accept or reject the project. The start-up costs were determined by splitting up the costs of $160,000 in 1967 and $40,000 in 1968. To calculate the yearly cash flows, I used year 1 through 10, and the gross profit was calculated by subtracting out relative cash flows and the before tax depreciation. The NPV of $169,530 is positive for the 10% discount rate, which is less than the IRR of 11.4%.

If Parkland wants to achieve the aggressive growth that the board desires his ability to improve the capabilities and the operations of the company will be one of his greatest barriers. Due to the affluent nature of the customers and the possible variety in the product Parkland should focus on improving the company’s organizational capabilities. A new plant will eventually be needed but that decision can be delayed if Charles can streamline its operations. Parkland needs to institute policies that will measure productivity and develop an accurate method of forecasting sales. This will result in lower inventory carrying costs, fewer out of stock issues, and fewer backorders that need to be filled. If Charles can reduce the number of back orders and out-of-stock products it can focus on a single product line at a time which will reduce the frequency of expensive switching costs.

Tucker Hansson, the owner of Hansson Private Label, is struggling in whether to execute the $50 million investment proposed by his manufacturing team. Under this situation, the subject of this report is to evaluate the potential investment of expanding production capacity at Hansson Private Label (HBL) and make a recommendation to Tucker Hansson. In this report, I will specifically focus on analyses of the project’s free cash flows (FCFs), weighted average cost of capital (WACC) and net present value (NPV). With a sensitivity analysis, it can help us to observe how change in some key project variables

investing in plant upgrade option B at one or more of the company's plants (but most especially its smallest plants where the savings on production run setup costs are big enough to allow quick recovery of the associated capital costs).

4. Location of the new plant: 0 points.  Here we would have to strongly consider if we could relocate the plant given that we could hire new workforce under completely new agreements. The biggest disadvantage that we have currently is that the workers are being overpaid, and reducing their salary would affect their

By using the 7.2% after tax rate and assuming the equipment will be sold at the beginning of the 5th year for its book value, if Agro-Chem bought the equipment the company would achieve a project NPV of ($1,043,500.23). In contrast, if Agro-Chem decided to lease the equipment with the same assumptions they would obtain a project NPV of ($1,030,205). Given these assumptions and based off our calculated NPV we recommend that Agro-Chem lease the equipment rather than buy because of the $13,295.23 savings. This $13,295.23 savings is the NAL.

* Finance: To build the new plant, the company needs to invest a large amount of capital, thus it should identify whether its current finance is enough for investing or it needs to attract more money. If not, the company may choose some kind of financing such as issuing bond, borrowing money or offering IPOs.

Commercial’s NPV is $.1516 million (see Table 3). This was determined by using the present values of the four year lease agreement between Prudent and Commercial. We concluded that Commercial’s discount rate will be 10% because of their opportunity cost. Commercial needs to have a residual value on the DAS of 6.8 million or greater, which will give them a positive net present value. Therefore, if their net present value shows negative, they would not want to lease to us. Assuming Commercial receives the same 5 year MACRS rate on the equipment purchase, then the system should be worth 7.01 million (book value) at the end of year 4 (see Table 4). This allows Commercial to have a positive NPV of $.1516 million (see Table 4). Therefore, they would be willing to lease the DAS to us.

From Exhibit 4 the NPV is about $1.5 million. There initial investment is $400,000. Without included debt payments this appears attractive. However, the NPV should include the debt payments for a useful NPV. This reduces the NPV significantly. The investors double their money and the investment appears viable.

Our approach to valuing the processing plant can easily be decomposed into three distinct steps first, find the value of the foreseeable free cash flows. Next, calculate the terminal value of the project. Finally, take the present value of those flows. The next few paragraphs walk through each of these steps in order of progression.

We should Exhibit 6 with Exhibit 7, beacuse the last one considers an inflation of 11%; also Exhibit 8 can help us to obtain the Rm and Rf.

* Investment in plant upgrades that provide the greatest benefit for each plant, which is most likely any of them except for plant upgrade: C.

This is beyond the company cost limit set of $16 million capital and $2.6 million yearly payment for improvement. The company is committed to keep the plant but at the basis on the cost limit set.

The upgrade of the Rotterdam plant involves implementing the Japanese technology and requires a capital expenditure of £8.0 million with £3.5 million spent today, £2.0 million on year one, £1.0 million on year two and £1.0 million on year three. This will also increase polypropylene output by 7% from current levels at a rate of 2.0% per year. In addition, gross margin will improve by 0.8% per year from 11.5% to 16.0%. After auditing the financial models, it is concluded that the static net present value of the upgrade is -£6.35 million using a discount rate of 10% and an expected inflation rate of 3% annually. The Rotterdam upgrade contains an option to switch to the speculated German technology being available in five years. The current value of the option is zero as it is deeply out-of-the-money. The total net present value of the upgrade is -£6.35 million. The incremental earnings per share of the upgrade is £ 0.0013, the payback period is 14.13 years, and the internal rate of return is 18.7%.

The required interest rate which would return an NPV of zero is 9.22%. This is less than the cost of capital of 10%.