World Wide Paper Company Case Accounting, Finance, SPSS Case Study (Case Study Sample)

World Wide Paper Company Case
Name
Institution
1 Determine the nature of the investment under consideration
Addition of the new on-site logwood yard by the World Wide Paper Company is a physical and tangible long term investment.
2 Estimate relevant cash flows required to make a proper decision
The following table presents the relevant cash flows necessary to make proper decisions about the project.
 

2007

2008

2009

2010

2011

2012

2013

Initial investment outlay

16

2

 

 

 

 

 

operating saving

2

3.5

3.5

3.5

3.5

3.5

3.5

revenue

 

4

10

10

10

10

10

cost of sales

 

3

7.5

7.5

7.5

7.5

7.5

SG &A

 

0.2

0.5

0.5

0.5

0.5

0.5

Working Capital

 

0.4

0.6

0

0

0

0

Net income before tax

-14

4.9

12.4

13

13

13

13

Tax

 

1.96

4.96

5.2

5.2

5.2

5.2

Net Income After Tax

-14

2.94

7.44

7.8

7.8

7.8

7.8

3 Perform all relevant financial analysis required to make your decision.
* Cost Of Capital
Discounting rate is obtained by (Thibierge & Beresford, 2015):
Expected rate = Rf + B (Mr – Rf)
Where:
RF: is the risk-free rate
B: is the beta for the World Wide Paper Company
MR is the return in the market
Risk-free rate (30-year Treasury bond yield) = 5%
Beta for the World Wide Paper Company = 1.1
Historical market premium (return on market less Risk-free rate) = 6%
RF = 5% + 1.1(6%)
= 11.6%
* Net Present Value
Net present value shows the difference that exists between the present value of the cash inflow and outflow which helps to show the profitability of a given project. (Lumby & Jones, 2003). To get the net present value of the addition of the new on-site logwood yard by the World wide paper company is carried out using the above discounting rate of 11.6%,
Net Income After Tax