This document discusses two projects and their net present values under different scenarios. For Project Tuff Wheels, the net present value decreases over 50% if actual sales are 50,000 but increases over 50% if sales are 70,000. Also, increasing the discount rate from 9% to 11% decreases the net present value by around 2.5% each time. For the second project, raising the unit price by $50 in both years increases the net present value, and if sales are only 200,000 and 100,000 in the two years, the net present value decreases by 500%, making the project undesirable.
Original Description:
This paper told us about how to decide whether we should take Project on Tuff Wheels or not. The analysis would use Net Present Value or NPV method
This document discusses two projects and their net present values under different scenarios. For Project Tuff Wheels, the net present value decreases over 50% if actual sales are 50,000 but increases over 50% if sales are 70,000. Also, increasing the discount rate from 9% to 11% decreases the net present value by around 2.5% each time. For the second project, raising the unit price by $50 in both years increases the net present value, and if sales are only 200,000 and 100,000 in the two years, the net present value decreases by 500%, making the project undesirable.
This document discusses two projects and their net present values under different scenarios. For Project Tuff Wheels, the net present value decreases over 50% if actual sales are 50,000 but increases over 50% if sales are 70,000. Also, increasing the discount rate from 9% to 11% decreases the net present value by around 2.5% each time. For the second project, raising the unit price by $50 in both years increases the net present value, and if sales are only 200,000 and 100,000 in the two years, the net present value decreases by 500%, making the project undesirable.
Project Tuff Wheels a. The yearly cash flows and NET PRESENT VALUE are shown below:
b. If the actual sales are 50,000 per year, the value of NET PRESENT VALUE is decreasing more than 50%. If the actual sales are 70,000 per year, the value of NET PRESENT VALUE is increasing more than 50%.
c. By changing of discount rate to 9%, 10%, and 11%, the value of NET PRESENT VALUE keeps decreasing about 2.5%.
4. Chapter III, Problem 2 a. The yearly cash flows and NET PRESENT VALUE are shown below:
b. If unit price $50 higher in both years, then value of NET PRESENT VALUE increases. Therefore, additional investment is worthy.
c. If sales are only 200,000 the first year and 100,000 the second year, the value of NET PRESENT VALUE decreases 500%. Therefore, Perot absolutely does not want to do the project.