Colorado Technical University Online Risk Methodologies Presentation

This week you will determine the profitability of a project by determining it’s NPV and IRR. 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. You must include the updated results of last week’s IP. If you did not have them correct, refer to your feedback. You must come to the correct conclusion in slide #8.

Apex 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.