Beruflich Dokumente
Kultur Dokumente
Penelope Manzo
Colorado Technical University
ECON616 - Applied Managerial Economics
Phase 4 IP - SWOT Analysis & NPV
Janet Hunter
Introduction
We have come towards the end of this decision for the expansion, however after meeting
with Lester it has been decided that we will have to calculate the operating cash flows, net
income, free cash flows, and the present value cash flow. There should also be an explanation to
the implications for AutoEdge and their shareholders whether there is a negative or positive NPV
or a conversely NPV. (Colorado Technical University Online, 2015)
$30.00
$20.00
Change in fixed assets
$10.00
Net Income
Depreciation (provided)
$0.00
1
($10.00)
Operating Cash Flows (FV)
($20.00)
($30.00)
represents the initial investment, the R is the discount Rate and the T is the period of time. The
biggest advantage to the NPV is that it calculates the time value of money and it is more reliable.
The disadvantage is that the calculation is the estimated cash flow and it could be inaccurate
from the actual result. (Jan, n.d.)
With the spreadsheet that Lester provided to calculate AutoEdges operational cash flows,
net earnings, present cash flows, NPV and free cash flows. As we can see from the image of the
spreadsheet below, (retrieved from Unit 4IP Spreadsheet) we can see that the NPV is at
US$55.29 million. This means that the cash flow for AutoEdge is being produced with a present
net worth that is higher than the initial investment expense of US$18 million. Since this is a good
amount of increase to the net cash flow for AutoEdge, it would be advisable to take advantage of
the opportunities at hand.
6%
6%
7%
8%
8%
7%
$30.10
$34.20
$38.10
$40.40
$45.60
$50.00
(US$ in millions)
Revenue
($16.10)
($17.20)
($18.90
)
($19.50)
($21.40)
($24.30)
Depreciation
($4.10)
($4.40)
($4.80)
($4.90)
($5.30)
($5.70)
Interest Expense
($0.45)
($0.56)
($0.69)
($0.73)
($0.78)
($0.81)
Taxes
($1.10)
($1.30)
($1.70)
($1.90)
($2.00)
($2.10)
Food
$8.35
$10.74
$12.01
$13.37
$16.12
$17.09
Add: Depreciation
$4.10
$4.40
$4.80
$4.90
$5.30
$5.70
$12.45
$15.14
$16.81
$18.27
$21.42
$22.79
($1.30)
($2.40)
($0.90)
$0.00
($4.90)
($2.10)
Net Income
$8.35
$10.74
$12.01
$13.37
$16.12
$17.09
Depreciation (provided)
$4.10
$4.40
$4.80
$4.90
$5.30
$5.70
$12.45
$15.14
$16.81
$18.27
$21.42
$22.79
($1.30)
($2.40)
($0.90)
$0.00
($4.90)
($2.10)
$11.15
$12.74
$15.91
$18.27
$16.52
$20.69
0.943
0.89
0.816
0.735
0.681
0.666
$10.51
$11.34
$12.98
$13.43
$11.25
$13.78
$10.51
$11.34
$12.98
$13.43
$11.25
$13.78
($18.00)
Pvif factor
PV Cash flows
Value of future flows
Initial expenditure
NPV
($18.00)
$55.29
In Conclusion, even though the part for manufacturing would be at a lower price from
South Korea, we have to consider that they did not meet the quality standards for AutoEdge.
Since we were not able to provide this to the consumers, it has caused the reputation for
AutoEdge to go down leaving us with a few impediments. It would be recommended that
AutoEdge relocate their manufacturing operations into the United States and take full control.
This will help AutoEdge to see how the labor cost, human resources and investment capital will
end up being an advantage with lower costing.
Reference:
Colorado Technical University Online. (2014). ECON616 Phase 4 [Task List]. retrieved August
10, 2015, from Colorado Technical University Virtual Campus
Jan, I. (Ed.). (n.d.). Net Present Value (NPV). Retrieved August 11, 2015, from
http://accountingexplained.com/managerial/capital-budgeting/npv
Keat, P. G. Young, P. K. Y., & Erfle, S. E. (2013). Managerial Economics: Economic Tools for
Today's Decision Makers. 7th Edition. Pearson Publishing Co.
Manktelow, J. (n.d.). SWOT Analysis: Discover New Opportunities, Manage and Eliminate
threats. Retrieved August 11, 2015, from
http://www.mindtools.com/pages/article/newTMC_05.htm