What financial figure do you believe was the determinant- Risk Management
Risk Methodologies Assignment
For this assignment, you must calculate the IRR and NPV as you did last week in your spreadsheet with new numbers. You do not need to turn in the spreadsheet, though you can include a screenshot in your PPT. In any case you must complete the calculations and present the NPV and IRR for the coffee packaging project.
The point of this exercise is to determine whether to go forward with the coffee project based on the NPV and IRR of the project.
The most important slides are #4 and #8. You must provide a correct NPV for the new project.
You must come to the correct conclusion in slide #8.
You must include the updated results of last week’s IP. If you did not have them correct, refer to your feedback.
You must include speaker notes of 100 words per slide, 2-8.
Use this information:
Apix is considering coffee packaging as an additional diversification to its product line. Here’s information regarding the coffee packaging project:
Initial investment outlay of $40 million, consisting of $35 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
Project and equipment life: 5 years
Sales: $27 million per year for five years
Assume gross margin of 50% (exclusive of depreciation)
Depreciation: Straight-line for tax purposes
Selling, general, and administrative expenses: 10% of sales
Tax rate: 35%
Assume a WACC of 10%.
Compute the project’s IRR and NPV.
In addition, answer the following questions:
Do you believe that there was sufficient financial information to make a solid decision on what to do?
Was there further financial information that you required that was not provided to you?
What financial figure do you believe was the determinant to your decision and why?
How would you be able to apply this particular financial information to other situations?
Discuss risk methodologies used in capital budgeting.
The Coffee packaging project is being considered on its own.
There is no hurdle rate given. Focus on the NPV. If it is positive the project will be accepted.
You should say what has changed from the previous project, that is the previous assignment.
Organize your PPT as below:
PowerPoint, 9 slides.
| Slide 1: Titles. 5
| Slide 2: Overview of Apix. Summary of company’s assets, total profit, cash flow from operating activities, cash flow from investing and financing.
| Slide 3: Summary of last week’s expansion project. Provide previous spreadsheet results. Discuss them.
| Slide 4: Provide your new NPV and IRR calculations and results for the coffee packaging project. Discuss what has changed.
| Slide 5: Do you believe that there was sufficient financial information to make a solid decision on what to do? Was there further financial information that you required that was not provided to you? What financial figure do you believe was the determinant to your decision and why?
| Slide 6: How would you be able to apply this particular financial information to other situations? Discuss risk methodologies that are used in evaluating capital budgeting.
| Slide 7: What is the biggest risk for the company, and what can be done to minimize the risk?
| Slide 8: Summary: Make a recommendation. Should the coffee packaging project be accepted as an additional diversification to its product line? Why or why not? 50/50
| Slide 9: References.
| Speaker Notes of 100 words per slide.
Weekly tasks or assignments (Individual or Group Projects) will be due by Monday and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time.
Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.
Apix is considering coffee packaging as an additional diversification to its product line. Here’s information regarding the coffee packaging project:
• Initial investment outlay of $40 million, consisting of $35 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
• Project and equipment life: 5 years
• Sales: $27 million per year for five years
• Assume gross margin of 50% (exclusive of depreciation)
• Depreciation: Straight-line for tax purposes
• Selling, general, and administrative expenses: 10% of sales
• Tax rate: 35%
Assume a WACC of 10%.
Should the coffee packaging project be accepted? Why or why not? Compute the project’s IRR and NPV.
In addition, answer the following questions:
• Do you believe that there was sufficient financial information to make a solid decision on what to do?
• Was there further financial information that you required that was not provided to you?
• What financial figure do you believe was the determinant to your decision and why?
• How would you be able to apply this particular financial information to other situations?
• Discuss risk methodologies used in capital budgeting.
