Empirical Chemicals, LTD (A): The Merseyside Project Spencer Ely FIN 4422 M/W 8am October 24, 2011 Empirical Chemicals is a worldwide competitor in its industry, but earnings are falling and investors are anxious for improved financial performance. The plant manager of an aging production facility believes it’s the right time for plant modernization in order to make up for deferred maintenance in the past and to increase production efficiency. The Merseyside factory belongs to the Intermediate
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Unsatisfactory Missing more than one of the requirements Calculate NPV, IRR, Payback and/or the Profitability Index and Perform scenario analysis - 10% Excellent Good Satisfactory Unsatisfactory Correctly calculate the weighted One or two More than Not using the average NPV, IRR, Payback, and arithmetic errors two probabilities to Profitability Index based on the arithmetic calculate the given scenarios errors weighted average NPV Perform sensitivity analysis - 20%
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Project: Finance for Managers Table of content 1. Mission Statement 2. Company’s profile 3. Market Dynamic: SOTW 4. Case 1 & results 5. Case 2 & results 6. Evaluation Mission Statement We are committed to provide an outstanding experience in Automotive and associated businesses to all our customers through superior value products and services. | | | | | SSFF as a company is one of the reliable importers and distributors of automotive spare parts in Pakistan
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Especially as these projects often tend to be dependent on or impact other projects. Evaluating them compared to other projects without a terminal value may result may be impossible. At the very least, a defined ranking of tools (for example: NPV, then IRR, then payback) and a defined process for comparing perpetual and non-perpetual projects would help to reduce this concern. Figure 1: The current process ------------------------------------------------- 1) Capital budget was set by the
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initial investment in project A? 12. b. How long will it take for Bill to recoup his initial investment in project B? 13. c. Using the payback period, which project should Bill choose? 14. d. Do you see any problems with his choice? 15. P10–10 NPV: Mutually exclusive projects Hook Industries is considering the replacement of 16. one of its old drill presses. Three alternative replacement presses are under consideration. 17. The relevant cash flows associated with each are shown in the following
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Question One Features of a good selection criteria The following are important issues that managers should consider when evaluating selection models: 1. Realism: An effective model must reflect organizational objectives, including a firm’s strategic goals and mission. Criteria must also be reasonable in light of such constraints on resources as money and personnel. Finally, the model must take into account both commercial risks and technical risks, including performance, cost, and time
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benefit for 3 employyes 3. Considered $0.45 as purahce price of can if you are not making it. This will tell us cost savings n Make vs Buy. So Annual Saving by Making the cans is $84702. 4. NPV iusing excel function is NPV(12%, -200000,84702,84702,84702,84702,136702) = $155,883.25 5. IRR using excel is IRR(-200000,84702,84702,84702,84702,136702) = 37.54% 6. Payback period:Payback period is the time required for cumulative cash inflows to recover the cash outflows of the project. Payback period
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numerous analytical techniques to help them make capital investment decisions. Each technique has advantages and disadvantages” (Edmonds, 2007). The three techniques that we will focus on are the payback method, net present value (NPV), and the internal rate of return (IRR). First there is the payback method. This is pretty simple to figure out and understand. This is how long it will take a business to recover the initial outflow for an investment. Payback period = Net cost of investment/Annual
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184,953.11 euros, but results in a positive incremental NPV of 907,198 in comparison of the two machines (Table 1). Based on the cost comparison between the two machines, the VMM machine will generate less annual recurring cost compared to the old molding machine (Table 1). The improvement in the labor efficiency is the major contributor to the cost difference of the two molding machines (Tables 4-5). The 0% employee retention rate favors NPV the best, but even if Fonderia retains 100% retention
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Variable cost per unit can be increased by 10% up to 30% and the impact on cash flows and Net Present Value and IRR can be analyzed. 4. How should the interest expenses be treated? Explain. The interest expense should not be deducted when calculating the annual cash flows. Interest is a financing expense and is included in the discount rate (cost of capital) used to calculate the NPV. If we deduct interest expenses we will be double counting. 5. Using the base case estimates calculate the
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