Question

In this paper, please discuss the following case study. For you to complete this assignment you must:

• Explain your approach to the problem.
• Support your approach with references, and execute your approach.
• Provide an answer to the case study’s questions with a recommendation.

This case continues following the new project of the WePROMOTE Company, that you and your partner own. WePROMOTE is in the promotional materials business. The project being considered is to manufacture a very unique case for smartphones. The case is very durable, attractive and fits virtually all models of smartphone. It will also have the logo of your client, a prominent, local company and is planned to be given away at public relations events by your client.

As we know from the prior case involving this company, more details of the project become apparent and with more precision and certainty.

The following are the final values to the data:

• The cost of the equipment will be $70,000 and this cost is incurred prior to any cash is received by the project.
• The expected annual cash revenue of the project will be $30,000.
• The expected annual cash outflows (expenses/costs) are estimated at being $11,000, excluding depreciation.
• Your tax rate is 30% and you plan to depreciate the equipment on a straight-line basis for the life of the equipment. The discount rate you are assuming is 6%.
• After 5 years the equipment will stop working and there will be no salvage value.

Requirements of the paper:

• Perform the final NPV calculations and provide a narrative on how you calculated the computations and why (justification of answer).
• Present your calculated answers in schedule format (a table) along with your narrative. Microsoft Excel is also recommended for calculating and creating a table (your schedule).
• Then provide a summary conclusion on whether you should continue to pursue this business opportunity.
• Research, using at least one other sources other than the textbook materials that support your calculations and conclusions.

Papers will be assessed on the following criteria:

• Provide the final, accurate NPV calculations.
• A narrative on how the NPVs were calculated. The narrative should include how the data relating to depreciation and its tax consequences affect the cash flow of the project. Include a table with your analysis to present your work.
• Provide a conclusion on whether this business opportunity should be pursued.

Answer 1

We have to calculate the NPV to assess whether opportunity should be pursued or not. To calculate NPV we have to find out:

1) Net Profit before tax and tax on it

2) Net Cash inflow and present values

3) Net Present value

1) Net Profit before tax and Tax

Net Profit after tax
Profit and loss	Year 1	Year 2	Year 3	Year 4	Year 5
Income
Revenue	$30,000	$30,000	$30,000	$30,000	$30,000
Less:
Annual Cash outflow(expenses)	$11,000	$11,000	$11,000	$11,000	$11,000
Depreciation ($70,000/5)	$14,000	$14,000	$14,000	$14,000	$14,000
Total Expense (B)	$25,000	$25,000	$25,000	$25,000	$25,000
Net Income C= (A-B)	$5,000	$5,000	$5,000	$5,000	$5,000
Tax Rate	30%	30%	30%	30%	30%
Tax D= C*tax rate	$1,500	$1,500	$1,500	$1,500	$1,500
Net Profit after Tax	$3,500	$3,500	$3,500	$3,500	$3,500

As per question Depreciation to be charged straightline over the period of life of 5 years.

2) Net cash flow and present value of cash flow

Cash flow statement
Particulars	Year 1	Year 2	Year 3	Year 4	Year 5	Total
Inflow	1	2	3	4	5
Net Profit after tax	$3,500	$3,500	$3,500	$3,500	$3,500	$17,500
Add: Non Cash Expense						$0
Depreciation	$14,000	$14,000	$14,000	$14,000	$14,000	$70,000
Total Cash Inflow(A)	$17,500	$17,500	$17,500	$17,500	$17,500	$87,500
Cost of Capital	6%	6%	6%	6%	6%
Present value of cash flows	$16,509.434	$15,574.938	$14,693.337	$13,861.639	$13,077.018	$73,716
(formula)	CF/(1+.06)^1	CF/(1+.06)^2	CF/(1+.06)^3	CF/(1+.06)^4	CF/(1+.06)^5
Total Cash inflow	$87,500.000
Present value of cash flows	$73,716.366

PV formula

NPV(rate,range of cash flow)

present value of cash flow can be calculated though above two formula, first through individual present value of cash flow year wise or in together for all years.

3) Net Present value

Present value of cash flows	$73,716.366
Investment	($70,000)
NPV (PV of cash flow-Initial investment)	$3,716.366

Net present values is calculated deducting the initial investment from the total present value of cash flows.

Here as per answer NPV is positive $ 3716.366 so it advised to pursue for the opportunity.