Submitted by: Submitted by marcusbh
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Words: 2163
Pages: 9
Category: Business and Industry
Date Submitted: 12/14/2014 06:27 PM
Worldwide Paper Company Case
Executive Summary
What is the issue at hand?
Worldwide Paper Company (WPC) has the opportunity to expand its Blue Ridge Mill operations and add a new on-site longwood woodyard to its facilities. This new addition would have two primary benefits, the first being the elimination of the need to purchase shortwood from an outside supplier, thus lowering operating costs, and the second being the opportunity to sell shortwood on the open market as another source of revenue.
Costs of the project?
The addition would require a capital outlay from WPC of $18 million as well as an investment in working capital across a six-year time horizon. Working capital investment is estimated to be 10% of incremental revenues for each year.
Basis for our analysis?
To determine if this is a plausible investment and if the benefit is substantial enough to outweigh the risks, we calculated both the Net Present Value (NPV) and the Internal Rate of Return (IRR) in our analysis of the viability of this project. Generally projects with positive NPV and IRR’s that exceed the hurdle rate established by the company are accepted and put into action.
Analysis
In analyzing the profitability of the proposed investment for Worldwide Paper Company we determined the NPV of the investment along with its corresponding IRR. Using NPV we can predict the present value and the present value of cash outflows. NPV facilitated our analysis by taking the difference between the present value of both the cash inflows and cash outflows, we determined whether or not the proposed investment was acceptable. Ultimately, we determined that our NPV is a positive, resulting in value or profit generation for this project. Generally, since the NPV is positive, we should take on the investment knowing that it will result profit generation for WPC. Based on the historical and projected data provided, we conducted a net present value calculation based on...