Net Present Value and Worldwide Paper Company
Case 19
1. Worldwide Paper Company 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 the cash flows $18 million is not a small investment but in the long run 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. The 15% discount rate to calculate NPV and the Cash Flows by using that discount rate ended up with a negative NPV of $ 2,137,217.21. That the discount rate of 15% was out dated and insufficient. The rate of 9.62% to compute and using this number to get the NPV of $746,981.31. I would recommend Worldwide Paper Company to use the 9.62% discount rate, the returns will be great only if everything remains like expected So I would like to recommend them to evaluate themselves at least yearly as things may change from year to year.
3. The WACC of 9.7% yields an NPV for the project of $0.8 million and an IRR of 11.1%
Case 19
1. Worldwide Paper Company 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 the cash flows $18 million is not a small investment but in the long run 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. The 15% discount rate to calculate NPV and the Cash Flows by using that discount rate ended up with a negative NPV of $ 2,137,217.21. That the discount rate of
1. Worldwide Paper Company 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 the cash flows $18 million is not a small investment but in the long run 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. The 15% discount rate to calculate NPV and the Cash Flows by using that discount rate ended up with a negative NPV of $ 2,137,217.21. That the discount rate of 15% was out dated and insufficient. The rate of 9.62% to compute and using this number to get the NPV of $746,981.31. I would recommend Worldwide Paper Company to use the 9.62% discount rate, the returns will be great only if everything remains like expected So I would like to recommend them to evaluate themselves at least yearly as things may change from year to year.
3. The WACC of 9.7% yields an NPV for the project of $0.8 million and an IRR of 11.1%
Case 19
1. Worldwide Paper Company 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 the cash flows $18 million is not a small investment but in the long run 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. The 15% discount rate to calculate NPV and the Cash Flows by using that discount rate ended up with a negative NPV of $ 2,137,217.21. That the discount rate of