Net Present Value and Project - 3264 Words

UNIVERSITY OF LA VERNE La Verne, California Tesca Case A Paper Submitted in Partial Fulfillment of the Requirements for BUS 635 CRN 1105 – Managing Financial Resources Nepal Plummer College of Business and Public Management Department of Management and Leadership March 3, 2014 TESCA CASE STUDY SUMMARY RESULTS AND RECOMMENDATIONS The proposed refrigerator manufacturing and sales project for Tesca Works, Inc. is a financially complicated project which on the surface, given the increase in energy costs and customer demand may seem like a winning proposition. However, when we delve further into the details of the financial projections along with projections of the†¦show more content†¦The price per kilowatt hour has increased almost 50% in 10 years (EIA, 2014). Thus to the consumer the price of energy is a big concern and the costs will most likely continue into the future. There is potential for an increased demand to replace aging inefficient appliances that are causing increased electrical bills for consumers. The energy cost and potential benefits to the consumer are of importance when determining the future of this project. The project is forecast to be of a positive value if the demand for refrigerators is at an average or strong demand from consumers. How ever, the realization of a high or average demand is mainly based on ‘gut-feeling’ rather than on sound financial information. There are too many variables in the marketplace that could cause demand to be weaker than projected. Such variables as a weak economy or recession could cause sales to drop which in turn would cause the project to lose its value quickly. 2) What is the project’s cost of equity? What is the appropriate discount factor to use for evaluating the refrigerator project? As seen in Exhibit I below, the project’s cost of equity (COE) is calculated to be 13.487%. We found this value by using the Capital Asset Pricing Model (CAPM) formula by adding the treasury note yield with the beta value, then taking the market return rate and subtracting the treasury note yield. We then multiply those values together to attain the cost of equity value of 13.487%. This meansShow MoreRelatedNet Present Value and Software Project Management1643 Words   |  7 PagesSOFTWARE PROJECT MANAGEMENT TUTORIAL LETTER 201 FOR INF3708 SOLUTIONS Solutions (Highlighted) - Assignment 01 – Semester 1 ASSIGNMENT 01 - COMPULSORY Study material Total marks Hughes Cotterell: Chapters 1 – 4 25 marks = 100% UNIQUE NUMBER: 203647 1. A 1. 2. 3. 4. 5. is said to be â€Å"A specific plan or design† or â€Å"A planned undertaking† System Scope Project Software Management -2- INF3708/201 2. Software Project Management scope normally comprises the following: a. Project FeasibilityRead MoreNet Present Value Calculation for PowerCo Project490 Words   |  2 PagesIntroduction The purpose of this analysis is to make a determination about a project that the PowerCo is considering. The project runs for twelve years. The discount rate is 8%. There are costs for the first two years and then there are net positive cash flows for the subsequent ten years. A net present value calculation will be used in order to determine if the company should undertake this project or not. The present value calculations will be done according to this formula: INCLUDEPICTURE http://iRead MoreThe Caledonia Project: An Analysis of Net Present Value Calculation494 Words   |  2 PagesThe project will be analyzed with a net present value calculation. The future cash flows will be calculated and then discounted to present day, then tabulated so that the net present value of the project is determined. This NPV will allow management to make a decision with respect to whether or not the project should be undertaken or not. Caledonia should focus on free cash flows for the project rather than accounting profit. The reason for this is that the free cash flows are the actual valueRead MoreNet present value (NPV), payback period (PBP) and internal rate of return (IRR) approaches for a project evaluation2931 Words   |  12 PagesAbstract This essay will discuss the net present value (NPV), payback period (PBP) and internal rate of return (IRR) approaches for a project evaluation. It is often said that NPV is the best approach investment appraisal, which I why I will compare the strengths and weaknesses of NPV as well as the two others to se if the statement is actually true. Introduction To start of, the essay will attempt to explain the theoretical rationale of the net present value approach to investment appraisal asRead MoreDiscuss Net Present Value (NPV) Payback has certain advantages, but disadvantages for long term project appraisal. Discuss.1285 Words   |  6 PagesINVESTMENT APPRAISAL Characteristically, a decision to invest in a capital project involves a largely irreversible commitment of resources that is generally subject to a significant degree of risk. Such decisions have far-reaching effects on a companys profitability and flexibility over the long term, thus requiring that they be part of a carefully developed strategy that is based on reliable appraisal and forecasting procedures. In order to handle these decisions, firms have to make an assessmentRead MoreCash Flow Per Period Of A Project790 Words   |  4 Pagesof a project depends on whether the cash flow per period of the project is even or uneven. In case they are even, the formula to calculate payback period is: Payback Period = Initial Investment Cash Inflow per Period When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then use the following formula for payback period: Payback Period = A + B C In the above formula, A is the last period with a negative cumulative cash flow; B is the absolute value of cumulativeRead MoreAssignment 3-Capital Budgeting Analysis1724 Words   |  7 Pagesprocess chooses capital projects from a number of potential options based on several factors such as payback periods, internal rate of return, and the net present value for each project. Each factor should work together effectively to ensure the greatest return in the least a mount of time. This paper will focus on determining the best financial outcome for a capital budget using these methods and calculations. To gain an understanding of the capital budget process, Project A and B will be analyzedRead MoreCaladonia Products Integrative Problem1382 Words   |  6 Pagesgive the assistant any large responsibilities without supervision. The CEO has tasked the assistant with both the calculation of the cash flows associated with a new investment under consideration and the evaluation of several mutually exclusive projects (Keown, Martin, Perry, Scott, 2005). The lack of experience on the assistants part has also lead to the CEO requesting not only that the assistant provide a recommendation but also to respond to a number of questions aimed at judging the assistantsRead MoreCase02 Piedmont1133 Words   |  5 Pagesyears. Using a discount rate of 8 percent, the net present value of all benefits is $1,732,836.16; the net present value of all costs is $1,64 0,384.79; the overall net present value is $92,451.36, and the project breaks even in approximately 3.84 years. Using a 10 percent discount rate, the net present value of all benefits is $1,645,201.46; the net present value of all costs is $1,576,173.19; the overall net present value is $69,028.27, and the project breaks even in approximately 4.04 years. UsingRead MoreCase759 Words   |  4 PagesDate: [ 2/22/2012 ] Re: Recommendation for Amstelveen Corporation’s project investment The purpose of this memo is to explain and recommend which projects Amstelveen Corporation should invest in based on capital budgeting calculations. First, I will explain if there are any contradictory recommendations and then I will give the recommended total I suggest Amstelveen to raise. I will also give my recommendation on which project(s) the company should pursue if it remains limited to â‚ ¬8,000.000. Recommendation