# Net Present Value and Worldwide Paper Company

Satisfactory Essays
337 Words
Grammar
Plagiarism
Writing
Score
Net Present Value and Worldwide Paper Company
Case 18: Worldwide Paper Company
INDIVIDUAL QUESTIONS

Case Questions:

1. What are the yearly cash flows that are relevant for this investment decision? Do not forget the effect of taxes and the initial investment amount. (Submit an excel spreadsheet into D2L containing your computations.)
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 wood yard. The yearly cash flows for this investment seem to be very good if everything remained or exceeded the assumptions on which we calculated the cash flows. \$18 million is not a small investment but in the long run we can see the company catching up to get back the invested money and also allowing them to make huge profits. The company is paying a 40% tax from their earning which is huge money but even after that, the company is making lots of profits.

2. What discount rate should Worldwide Paper Company (WPC) use to analyze those cash flows? Be prepared to justify your recommended rate and the assumptions that you used to estimate it.
We first used the 15% discount rate to calculate NPV and the Cash Flows by using that discount rate we ended up with a negative NPV of \$ (2,137,217.21). We determined that the discount rate of 15% was out dated and insufficient. Therefor to calculate a more accurate NPV for the project, we decided to use the rate of 9.62% that we computed. And using this number we got the NPV of \$746,981.31. I would recommend Worldwide Paper Company (WPC) to use the 9.62% discount rate, but this is a good project and the returns will be great only if everything remains like expected. So, I would also recommend them to evaluate themselves at least yearly as things may change from year to year.

3. What is the net present value (NPV) and internal rate of return (IRR) for the

## You May Also Find These Documents Helpful

• Good Essays

3. Compute the internal rate of return (IRR) and payback period for each project. How should these…

• 787 Words
• 4 Pages
Good Essays
• Good Essays

Next we had to get the Net Present Value (NPV), which is the “sum of the present values of all expected cash flows (Horngren, Sundem, Stratton, Burgstahler, and Schatzberg, 2008),” of the before tax net cash inflow. We took the net income and multiplied it by the NPV factor, which is 6.6231. \$560,000 * 6.6231 = \$3,708,936. Then we compared it to the investment, of \$3.3 million to see if it’s worth investing. This would be a good short-term and long term investment because it’s more than the initial investment.…

• 553 Words
• 3 Pages
Good Essays
• Powerful Essays

The results of the analysis lend favourably towards accepting the investment project. First it is important to note that based on the after tax cost of borrowing and a risk premium of 3.75%, a discount rate of 8.89% was deemed appropriate for the project. The majority of the investment indicators used to value the project use discounted cash flows to determine the investment’s profitability. This technique allows for comparison amongst different investment opportunities available, as it provides the total return that is expected to be achieved over the project’s horizon in current dollar terms.…

• 3248 Words
• 13 Pages
Powerful Essays
• Better Essays

The focus of EEC’s investment of the purchasing of the supplier is to cut down on the cost expenditures of the company. The primary board members and investors anticipate in the timeframe the fifth of to save financially in revenue \$600,000 per annum this will accumulate \$9 million in net in the timeframe of that 15 years. 14% of that investment and consumption cost will be attributed out of \$9 million net, which adds up to sum of \$3 million. The president of the company asked me to give an analysis in the possibilities foreseen in the investment what would be the Net Present Value, along with the Internal Rate of Return, and the payback of the investment.…

• 1228 Words
• 4 Pages
Better Essays
• Satisfactory Essays

The internal rate of return (IRR) is defined as the discount rate that results in a net present value of zero. IRR uses the time value of money method to calculate the present value of the projects cash inflows and outflows. Cost of capital, or minimum required rate of return, is compared to the IRR to evaluate a project. The IRR needs to be equal to or greater than cost of capital for the project to be acceptable. If the IRR is less than the cost of capital, the project should be rejected. When using IRR the cost of capital is referred to as the “hurdle rate”.…

• 343 Words
• 2 Pages
Satisfactory Essays
• Satisfactory Essays

3. The project is a slam-dunk for the corporation because they are yielding an internal rate of return of 80%. The NPV of the future cash flows is significantly larger than the purchase costs of the assets.…

• 346 Words
• 2 Pages
Satisfactory Essays
• Satisfactory Essays

Is equal to the annual net cash flows divided by one half of the project’s cost when the cash flows are an annuity…

• 836 Words
• 4 Pages
Satisfactory Essays
• Good Essays

You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is \$3,000,000.…

• 711 Words
• 3 Pages
Good Essays
• Satisfactory Essays

of Return (IRR) from this project is around 15.66%. Given the projected cash flow information…

• 305 Words
• 2 Pages
Satisfactory Essays
• Powerful Essays

The company will begin working out of a home. Therefore, cost will not extend past the startup cost of \$50,000, of which the company will supply \$4,000. Based on preliminary estimates, the company will be expecting revenues of approximately \$15,336 and a net income of \$1,278 per month. Assuming the net income holds true the payback on the \$46,000 of capital required is five years. The Net Present Value of the project is approximately \$23,000 assuming a 10% discount rate for 5 years.…

• 1930 Words
• 8 Pages
Powerful Essays
• Good Essays

Due Friday, November 15th at 1155 PM Kayla and Zhejia have always wanted to start their own consulting firm. Kayla and Zhejia have the opportunity to purchase an existing consulting firm for 500,000. The purchase price of 500,000 would be allocated 400,000 for the existing businesss building and 100,000 for the land on which the building sits. They plan to work for 15 years and then retire after selling their business to new owners. Start-up costs would include 40,000 in working capital which is to be used for advertising, salaries and supplies. They plan on naming their business KZ Consulting if they decide to invest their savings in its purchase. Kayla and Zhejia believe they can earn 12 by investing in the stock market so their cost of capital is equal to their opportunity cost of 12. Kayla and Zhejia believe a Simple Rate of Return on a project like this should be at least 30 because of the risk. They have made the following estimates…

• 1986 Words
• 5 Pages
Good Essays
• Good Essays

## Busn

• 1773 Words
• 8 Pages

You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is \$3,000,000.…

• 1773 Words
• 8 Pages
Good Essays
• Satisfactory Essays

Read the scenarios below and select one to review and analyze. Determine the proposal’s appropriateness and economic viability. For all scenarios, assume spending occurs on the first day of each year and benefits or savings occurs on the last day. Assume the discount rate or weighted average cost of capital is 10%. Ignore taxes and depreciation.…

• 277 Words
• 2 Pages
Satisfactory Essays
• Good Essays

The next part of the cash flow analysis deals with Net Present Value (NPV). Nucor and any company that seeks to project if an investment is worthwhile to pursue must understand if the cash flows are in excess of the cost of capital. There are several different assumptions that are given to understand NPV for this project. The excel sheet “CF analysis-thin slab” shows in detail that cash flows are delayed due to plant construction and start-up costs. When the negative and positive cash flows are calculated by the discount rate of 15% there appears a NPV of -\$51.32. This shows that the project…

• 748 Words
• 3 Pages
Good Essays
• Satisfactory Essays

GROUP SUBMISSION: Due 27 June 2011 Midnight American Chemical Corporation CASE QUESTIONS Read the American Chemical Corporation case that was handed to you. The underlying question to be answered is should Dixon acquire the Collinsville plant. In your case write-up, you can discuss the questions given below. Please note that the given questions are to be used only as a guide for your discussion. You do not need to answer the questions in the sequence they are presented. You can use the spreadsheet called AmericanChemCorp.xls (posted on instructor) to do your computations. Financial analysis 1. Extract all the important information given in the case study (text, footnotes and exhibits) that you will need as part of your set of assumptions in cash flow analysis, e.g. the marginal tax rate, net working capital, salvage value of the Collinsville plant, etc. 2. Using the information extracted in (1) above and relevant tables in the exhibits, estimate the expected incremental free cash flows associated with the acquisition of the Collinsville plant a. Without the laminate technology. b. With the laminate technology. 3. What is the IRR for the Collinsville investment with and without the laminate technology? Using the IRR, which of the two options is better? Estimating the discount rate 4. What is the appropriate beta for the Collinsville project? 5. Estimate the cost of equity capital appropriate for the evaluation of the incremental cash flows associated with the Collinsville investment. 6. Determine the after-tax cost of debt for the project. 7. Estimate the weighted average cost of capital (WACC) appropriate for the valuation of the Collinsville investment. Project Valuation 8. Using the discount rate determined above, estimate the net present value (NPV) of the Collinsville investments a. without the laminate technology b. with the laminate technology 9. Should Dixon Corporation acquire the plant? Is the Collinsville investment attractive on economic grounds?…

• 364 Words
• 2 Pages
Satisfactory Essays