Question

1. What is the net present value (NPV) of the project?

2. Based on this NPV, should Hasbro undertake this project?

3. What is the internal rate of return (IRR) of this project? You can find IRR by varying the discount rate in your table until NPV is zero. That new discount rate will be the IRR.

Your grade will be based on the completeness of your cash flow table and calculations as well as your answers above.

Monopoly expansion project Hasbro is considering a new high-profile marketing project to aggressively market a card game version of Monopoly called Monopoly Deal. The Marketing department would spend an extra $1.0 million per year for the next five years to increase TV commercials and print ads featuring Monopoly Deal. The primary Monopoly factory would be expanded at a cost of $5.5 million to manufacture more of the games. Assume that the factory expansion would be completed in the first year of the project. The Marketing department estimates that the marketing campaign will increase Hasbro sales enough to bring in additional cash inflows of $2.5 million per year for the five-year period. Hasbro uses a discount rate of 15% to evaluate projects such as this one. Use a 5-year time horizon, and assume no salvage value of the factory expansion at the end of this period.

Answer 1

PART 1- COMPUTATION OF NPV

NOTE- We have assumed that expenditure on expansion of factory is done in year 0 and expansion is completed in year 1.

Year	Cash inflow	Cash outflow	Net Cash Flow	PVF @ 15%	Present Value
a	b	c	d=b-c	e	f=d*e
0	$0.00	$5,500,000.00	-$5,500,000.00	1.000	-$5,500,000.000
1	$2,500,000.00	$1,000,000.00	$1,500,000.00	0.870	$1,304,347.826
2	$2,500,000.00	$1,000,000.00	$1,500,000.00	0.756	$1,134,215.501
3	$2,500,000.00	$1,000,000.00	$1,500,000.00	0.658	$986,274.349
4	$2,500,000.00	$1,000,000.00	$1,500,000.00	0.572	$857,629.868
5	$2,500,000.00	$1,000,000.00	$1,500,000.00	0.497	$745,765.103
				NPV	-$471,767.353

Thus, NPV of the Project = - $471,767.353

PART 2- DECISION

Hasbro should not undertake this project since the Present value of net benefit attained from the project will be negative. For a project to be accepted, net benefit should be positive.

PART 3- CALCULATION OF IRR

IRR is that rate of return at which Net Present value becomes zero. It is the minimum desired return by an organisation.

By substituting various rates in place of 15% while computing Present value factor, we got the IRR as 11.316416765%.

Year	Cash inflow	Cash outflow	Net Cash Flow	PVF @ 11.316416765%	Present Value
a	b	c	d=b-c	e	f=d*e
0	$0.00	$5,500,000.00	-$5,500,000.00	1.000	-$5,500,000.000
1	$2,500,000.00	$1,000,000.00	$1,500,000.00	0.898	$1,347,510.137
2	$2,500,000.00	$1,000,000.00	$1,500,000.00	0.807	$1,210,522.379
3	$2,500,000.00	$1,000,000.00	$1,500,000.00	0.725	$1,087,460.785
4	$2,500,000.00	$1,000,000.00	$1,500,000.00	0.651	$976,909.621
5	$2,500,000.00	$1,000,000.00	$1,500,000.00	0.585	$877,597.078
				NPV	$0.000

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