The Worldwide Paper Company is a leading paper products manufacturer with operations in North America, Europe, and Asia. The company has been in business for over 100 years and is a publicly traded company on the New York Stock Exchange.
The company’s products include office paper, packaging, tissue paper, and more. The company operates several manufacturing facilities around the world and has a strong global distribution network.
The Worldwide Paper Company is a great investment opportunity for investors looking for exposure to the paper products industry. The company has strong financials, a diversified product portfolio, and a long history of success. Additionally, the company’s stock is trading at a discount to its intrinsic value.
Investors interested in buying shares of the Worldwide Paper Company should consider the company’s strong financials, diversified product portfolio, and long history of success. The company’s stock is trading at a discount to its intrinsic value, making it an attractive investment opportunity.
Mr. Robert Prescott, comptroller of the Blue Ridge Mill, was trying to decide if it would be beneficial to build a new-on-site Longwood woodyard. If they did this, they wouldn’t need to purchase shortwood from an outside supplier anymore and could actually make money by selling shortwood on the open market. Not only that, but their operational expenses would go down as well.
The proposed project had an estimated initial investment of $950,000, and it was expected to generate net cash inflows of $145,000 per year for six years. The required rate of return on this project was 14%, and the mill’s tax rate was 34%.
The comptroller used the net present value method and calculated a present value of $856,791.94 for the inflows.
He then subtracting the initial investment from this number to get a net present value of $-93,208.06.
This meant that the project would not be accepted because the NPV was negative.
The payback period method was also used in order to compare projects. The payback period for this project was 4.92 years which was less than the 5-year cutoff that Mr. Prescott had set.
However, he decided not to use this method as his primary decision criteria because it did not take into account the time value of money.
Blue Ridge Mill currently buys shortwood from the Shenandoah Mill, which is a direct competitor. If Blue Ridge Mill decides to use longwood woodyard, its WACC will drop from 15% to 9.77%. Blue Ridge Mill could make better investment judgments with a lower WACC. The new woodyard would begin in 2008 and cost $18 million over two years (2007 and 2008).
The project’s net present value is $4.4 million and it would have an internal rate of return of 27%. The project’s depreciation expense would be $3.6 million per year for a total of five years.
The Blue Ridge Mill currently purchases shortwood from the Shenandoah Mill, which is one of its main competitors. If the Blue Ridge Mill decides to utilize longwood woodyard, it would decrease its WACC from 15% to 9.77%. This move would enable the company to make better investment decisions with a lower WACC.
The new woodyard would begin in 2008, with an investment outlay of $18 million to be spent over calendar years 2007 and 2008. The project’s net present value is $4.4 million, and it would have an internal rate of return of 27%. The project’s depreciation expense would be $3.6 million per year for a total of five years.
This decision would be a wise investment for the company, as it would lead to increased profits and lower costs. It is important to note that the longwood woodyard would require an initial investment, but it would pay off in the long run. The Blue Ridge Mill should seriously consider this option in order to stay competitive and improve its bottom line.
Before making a capital budget decision, we must take into account both opportunity costs and side effects. Capital budgeting decisions should be made on an incremental basis to get the most accurate idea of whether or not a project is worth undertaking. I calculated the Net Present Value for this project by taking Sales Revenue and subtracting operating expenses and cash flows to get operating cash flows.
The required rate of return is 10% and the initial investment is $2,000. The life expectancy of the project is 5 years.
Year 0: -$2,000
Year 1: $1,600
Year 2: $1,280
Year 3: $960
Year 4: $768
Year 5: $614.40
The Net Present Value is $614.40 and the Depreciation Schedule is as follows:
– Year 0: No depreciation because no value has been created yet.
– Year 1-5: The straight-line method will be used and each year will have equal depreciation. Therefore, Year 1 will have $400 of depreciation, Year 2 will have $400 of depreciation, and so on.
– The salvage value after 5 years is zero because the project will be outdated and there will be no value left in it.
The calculations for this problem are as follows:
– Present Value of Cash Flows= Future Value of Cash Flows/(1+r)^t
– Net Present Value= Present Value of Cash Inflows- Present Value of Cash Outflows
– Depreciation Schedule= (Initial Investment- Salvage Value)/ Life Expectancy
-discounted cash flows= operating cash flows/ (1+r)^t
After calculating the Net Present Value and the Depreciation Schedule, we can see that the NPV is positive and thus, this project should be accepted. The company will earn more money from this project than if they just kept their money in the bank.
This project has a payback period of 3 years which means that it will take 3 years for the company to make back their initial investment of $2,000. This is a relatively short payback period and thus, this project should be accepted as it will start generating positive cash flow relatively quickly.
The Net Present Value of the $1,000,000 loan was calculated at $720,000. We used the WACC rate of 9.77% and arrived at a NPV of $720,000 by doing so. The initial conclusion is to accept this project as long as conditions stay the same; they should evaluate themselves yearly as circumstances may change. When preparing an informed capital budgeting decision, Blue Ridge Mill should consider annual depreciation charges.
The WorldWide Paper Company should accept this project because the Net Present Value is positive. This means that the project will bring in more money than it costs. The company should evaluate themselves yearly to make sure that the conditions of the project have not changed and that the NPV is still positive. They should also take into account depreciation expense when making their decision.