Net Present Value and Impressions Company
M5A1 Case Analysis: Lasting Impressions Company
1. The integrative case allows you to apply some of the knowledge and concepts you have learned in this module. You will review the case of Lasting Impressions Company. The case will give you an opportunity to compute financial data and decide between two replacement press options. This analysis will include looking at the project’s initial investment, operating cash flows, net present value, payback period, and internal rate of return.
Read the following case study: • Lasting Impressions Company (See other attachment) • Based on your analysis of the case study, respond to the following: • Part A: For each of the two proposed replacement presses, determine the following items: • Initial investment • Operating cash inflows (Note: Be sure to consider the depreciation in Year 6.) • Terminal cash flow (Note: This is at the end of Year 5.) • Part B: Using the data developed in Part A, find and depict on a timeline the relevant cash flow stream associated with each of the two proposed replacement presses, assuming that each is terminated at the end of five years.
• Using the data developed in Part B, apply each of the following decision techniques: • Payback period (Note: For Year 5, use only the operating cash inflows.) • Net present value (NPV) • Internal rate of return (IRR)
• Recommend which, if either, of the presses the company should acquire if the company has: • Unlimited funds • Capital rationing • What is the impact on your recommendation of the fact that the operating cash inflows associated with Press A are characterized as very risky in contrast to the low-risk operating cash inflows of Press
1. The integrative case allows you to apply some of the knowledge and concepts you have learned in this module. You will review the case of Lasting Impressions Company. The case will give you an opportunity to compute financial data and decide between two replacement press options. This analysis will include looking at the project’s initial investment, operating cash flows, net present value, payback period, and internal rate of return.
Read the following case study: • Lasting Impressions Company (See other attachment) • Based on your analysis of the case study, respond to the following: • Part A: For each of the two proposed replacement presses, determine the following items: • Initial investment • Operating cash inflows (Note: Be sure to consider the depreciation in Year 6.) • Terminal cash flow (Note: This is at the end of Year 5.) • Part B: Using the data developed in Part A, find and depict on a timeline the relevant cash flow stream associated with each of the two proposed replacement presses, assuming that each is terminated at the end of five years.
• Using the data developed in Part B, apply each of the following decision techniques: • Payback period (Note: For Year 5, use only the operating cash inflows.) • Net present value (NPV) • Internal rate of return (IRR)
• Recommend which, if either, of the presses the company should acquire if the company has: • Unlimited funds • Capital rationing • What is the impact on your recommendation of the fact that the operating cash inflows associated with Press A are characterized as very risky in contrast to the low-risk operating cash inflows of Press