You have completed a study and have found that you can save $7.5 million in the first year after closing two warehouses, opening a new plant, and serving your customers from different facilities. This study was done with one year’s worth of data. The $7.5 million does not include the initial investment to close the warehouses and open the new plant. The initial investment is estimated to be $20 million. For the company you work for, you must include the net present value calculation when you present the business case. For the NPV calculations, your firm uses a 15% interest rate and goes out only five years (the thinking is that too much changes in five years, and they prefer shorter paybacks).
a. Calculate the NPV using the preceding data. Assume the same $7.5 million savings per year. Based on the NPV results, is this a good project?

  • CreatedOctober 29, 2015
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