Question

Project: Analysis Worldwide Paper Company Case and answer the question below

1-What are the sources of value –i.e., how does the project create expected value?

2- Considering inflation, what changes would you make to the base-case numbers associated with your NPV analysis? How might those changes impact the expected cash flows (and NPV)?

Answer 1

1 Project value will be defined as the value of the project which is created by a project for its shareholders and which could be efficiency or satisfaction of project stakeholder and technical effectiveness along with emphasis on clients and shareholders.

Project value would be having different type of sources-

A. Core competence of the firm will be helping the project in order to generate and alpha and make excess rate of return for stakeholders.

B. Project cost benefits associated with the project will also be helpful in creation of an excessive value to the overall project.

C. Pricing power of the the business will be helping in order to to realise a higher sales value thereby creating a higher net present value for the project.

D. Technical effectiveness and efficiency of the workforce will be helpful in order to create the higher value for the company.

E. Quick redressal of the grievances of various stakeholders and satisfaction of the stakeholders are another area which will be helpful for generation of source of value for the project.

2. When there is an inflation, then I will be trying to inflate my overall discount rate in order to decrease my net present value because inflation will be reducing the value of the cash inflows in the future so it should have been discounted with the higher rate and it will be helpful in better evaluation of the future cash flows.

These higher discounting rate will be leading to changes on the expected cash flows on the downside and changes in the net present value on the downside because when the cash flows will be discounted with the higher rate it would be resulting in lesser present value.