SWOT Analysis & NPV IP4

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Completion of Excel Spreadsheet & 500 words  

Over lunch, you and Lester meet to discuss your next assignment.

“The board of directors has been working on the cost and benefits of various expansion options,” he says. “We have developed the numbers for one scenario in this spreadsheet, and we want you to review it,” he says handing it to you.

“So you’re looking for me to use present value analysis to discount the cash flows,” you say. “Should I include the calculations for net income, operating cash flows, free cash flows, and the present value cash flows and net present value (NPV) in the spreadsheet?”

“Yes,” he says. “We want to know if the project has a positive or negative NPV. Also, in 500 words or less, explain the implications for AutoEdge and its shareholders if there is a positive NPV or, conversely, if there is a negative NPV.”

“This will be interesting,” you say.

“Good,” he says. “Oh, and one more thing. In addition to considering the NPV value, we want to know what kind of economic assumptions you think the board should consider. Articulate the economic and political risks with the strategy, and list options to overcome them. How will this decision affect the share price and the value of the company? In light of all this information, would you support the option for expansion abroad or relocate back to the United States? Include an explanation of your response, as well.”

“I’ll get right on it,” you say.

spreadsheet

Year Today Time 1 Time 2 Time 3 Time 4 Time 5 Time 6
Cost
of Capital		 6% 6% 6% 6% 6% 6%
(US$
in millions)
Revenue $30.10 $34.20 $38.10 $40.40 $45.60 $50.00
Selling,
General, Admin		 ($16.10) ($17.20) ($18.90) ($19.50) ($21.40) ($24.30)
Depreciation ($4.10) ($4.40) ($4.80) ($4.90) ($5.30) ($5.70)
Interest
Expense		 ($0.45) ($0.56) ($0.69) ($0.73) ($0.78) ($0.81)
Taxes ($1.10) ($1.30) ($1.70) ($1.90) ($2.00) ($2.10)
Change
in fixed assets		 ($1.30) ($2.40) ($0.90) $0.00 ($4.90) ($2.10)
Students
need to calculate the following:
Net Income $8.35
Depreciation
added back		 $4.10
Change
in fixed assets		 ($1.30)
Free
Cash Flow		 $11.15
Pvif factor 0.943 0.890 0.840 0.792 0.747 0.705
PV
Cash flows		 $10.51
Value
of future flows
Initial
expenditure		 ($18.00)
NPV

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