Magic Timber and Steel: Investment Evaluation with Net Present Value Case Study Solution
Positive NPV under each of the case, shows that investment in the new machine is highly feasible as it will bring positive wealth as well as anincreasein the overall value of the firm.
Qualitative Analysis
- Increase in capacity by 40%, which is currently non-utilizable but could be used in future to achieve growth and meet the demands.
- Employees’ safety and increase in the overall productivity of plant would increase the overall labor efficiency by reducing the time for production.
- Premium quality machine increases the quality level leading to a higher customer satisfaction.
Recommendations
On the basis of above analysis; the firm is recommended to invest in new machine. Although, the new machine has negative NPV in all stated conditions, but the 40% capacity that is currentlyunutilized could be further utilized to bring potential cash flows, leading towards an increase in the project’s NPV. Along with it, new machine brings employees’ safety and efficiency in terms of declining the time for production and latest machine design. Moreover, project life is considered to be 10 years as stated in the assumptions that could be extended with proper maintenance of the machine. The terminal value of the machine is also unidentifiable at current point, which could also bring potential cash flows for the firm. Moreover, a latest quality machine could increase the quality of production; increasing the customers’ satisfaction and the company’s returns...................................
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