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Essay / Research Paper Abstract
This 14 page paper answers 3 questions asked by the student. The first looks at a potential investment using Net Present Value, to assess if the project is worth undertaking, the second question looks at how the entrance of a lower priced competitor may impact on the company and the choice they have to do nothing and see a drop in demand, to decrease price or to increase marketing costs. The last part of the paper looks at a case where there is the potential for more demand and examined whether or not the company has sufficient working capital.
Page Count:
14 pages (~225 words per page)
File: TS14_TEcase1.rtf
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Unformatted sample text from the term paper:
at an investment cost of 800,000. The investment may be beneficial with the savings it will create. To assess if the project is worth undertaken we need to look at
the savings it may create over the life of the project. In order to asses the value we need to look at this in terms of todays money with a
net present value (NPV) calculation. This means taking the revenue, in this case savings and discounting them into todays value. The first stage is to take the costs that will
be incurred if the project does not go ahead as these will form the revenue figures for the NPV calculation. The cost pr processing each tin each year is assumed
to increase by 5% which is given as the level of inflation. Table 1; Costs that will be saved Cost per ton Tons Total cost Year 1
100.00 5,000 500,000.00 Year 2 105.00 5,000 525,000.00 Year 3 110.25 5,000 551,250.00 Year 4 115.76 5,000 578,812.50 Year 5 121.55 5,000 607,753.13 These are savings and as such there
are no direct tax issues to consider. Now we need to look at the NPV calculation. Here we look at the level of the costs each year that will be
incurred. For this we will use the inflation rate given and increased the first years amount by 5% each subsequent year. We can take the costs from the savings in
order to calculate the net savings. Once we have the net savings we need to discount these in order to give us a net present value. As we are told
the cost of capital is 10% we will assume that this is the discount rate. Table 2 NPV Calculation Savings Costs Net Savings Discount factor Discounted value Accumulative
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