Worldwide Paper Company Case Write Up

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In the case of Worldwide Paper Company we performed calculations to decide whether they should accept a new project or not. We calculated their net income and their cash flows for this project (See Table 1.6 and 1.5). We computed WPC’s weighted average cost of capital as 9.87%. We then used the cash flows to calculate the company’s NPV. We first calculated the NPV by using the 15% discount rate; by using that number we calculated a negative NPV of $2,162,760. We determined that the discount rate of 15% was out dated and insufficient. To calculate a more accurate NPV for the project, we decided to use the rate of 9.87% that we computed. Using this number we got the NPV of $577,069. With the NPV of $577,069 our conclusion is to accept this project as long as everything stays as it currently is. We recommend that they evaluate themselves at least yearly as things may change from year to year. Worldwide Paper Company (WPC) has an opportunity to take on a new project. With this project they would be considering an addition of a new on-site longwood woodyard. It will give them the ability to produce their own wood which is used to make paper. Also, with this new addition they would enter the market of selling the excess product to other mills. The question they are faced with is whether or not the project would truly reduce its costs, and increase its revenues. The following analysis will determine whether this project should be something that WPC should undertake. Due to the fact that capital budgeting must be done on an incremental basis, we must ignore any sunk costs and include both opportunity costs and side effects. In the case of WPC they did not have any sunk costs, so we took the sales revenue minus the operating costs and taxes to get cash flows from operations. We then added and/or subtracted any costs of the machine and net working capital to arrive at the total cash flow of the project for each year (See Table 1.6). To get the number used for taxes in...
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