Case Study Analysis Tyco Interna
The purchase of machine will be the initial outlay. The inflation rate might affect the cash flows and as it will increase the expense for the company. However, the company might also increase the prices, but this should be limited or else the sales volume would be reduced.
These risks should be considered while making decision. Financial Valuation The financial valuation has been made using the discounted cash flow model. The Cash flows has been estimated using the data provided in the case.
All the calculations have been made using the case data. Manufacturing cost includes raw material, labor, and energy cost.
The after tax profit has been calculated after deducting the tax expense. In the DCF model, depreciation is added back because it is a non-cash item. Working capital has been estimated using the case instructions, see excel. The changes in working capital have been incorporated in the model.
In the first year, working capital has been deducted since it is a cash outflow. At the end of the fifth year, which is assumed to be the last year and the project will be ended, this working capital is added back since it is removed from the project.
Opportunity cost and cannibalization cost is also deducted.
The residual value of the machine will be added, as it will be sold at this value at the end of the fifth year.
Net cash flows have been calculated and are then discounted using the cost of capital given, which is With such projected results, the project looks unfavorable. The projections have also been made using two other different scenarios and the results suggest that scenario 2 is the best option.
The results are compared in the next part. The company might have break-even if it is able to sell units per year. As per the comparison, the best case is the scenario 2.
The result however, is highly feasible. It is a recommended option. Conclusion Bebida Sol has been considering an expansion project through new product launch, Hola-Kola, a calorie free low-priced carbonated soft drink. The market study confirms the feasibility of the product.
A financial evaluation has been made, which confers that the project is not feasible with the base case assumptions. It is recommended that the company should adopt the option 3 scenario 2 or else drop this project, as it will otherwise generate loss for the company…………………… This is just a sample partial work.
Please place the order on the website to get your own originally done case solution Related Case Solutions:Case Study Capital Budgeting Renewal vs. Replacement Reference: Lawrence J. Gitman Managerial Finance (12 th edition), Chapter 8 1 This preview has intentionally blurred sections.
Sign up . The case introduces students to a variety of these decision biases in the context of the capital budgeting decision.
Students are required to examine how the assumptions underlying Caterpillar’s capital budgeting template could be influenced by individuals’ decision biases.
Hola Kola The Capital Budgeting Decision Case Solution Question 1) Working capital? Working capital is an amount required by the business operations in order to finance the additional operations and business growths.
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We custom case study solutions. Just e-mail your case study. Access to case studies expires six months after purchase date. Publication Date: August 31, Examines some parts of Stryker Corporation's systems and procedures for approving and authorizing.
Case Study and Exercise SOLUTION I. ANSWERS TO QUESTIONS Introduction to Capital Budgeting and Financing of Capital Projects UNEP 5. Table 1 Solutions for case study and exercise QUESTION 1 QUESTION 2 In the column below, list any annual operating costs that you think.