IBM Capital Budgeting Harvard Case Solution & Analysis

IBM Capital Budgeting Case Study Solution

From the above table, it could be seen that the project has an NPV of $3123 million, which implies that the project would bring substantial value to the firm with an increase in the firm’s value through its net present value of$3123.

Sensitivity Analysis

Sensitivity Analysis
ScenarioRevenue%Cost of CapitalRevenue GrowthNPV
Base7%12%variable3123
14%10%10%1583
23%12.50%5%526
32%15%0%-304

From the above sensitivity analysis; it could be seen that despite of decreased revenue growth, increased cost of capital and reduced revenues as a percentage of total revenues; the project still shows a positive NPV in all cases, except the last one which is an extreme case, with highest cost of capital, no revenue growth and lowest percentage of total revenue. This implies that in worst case; the project could be non-feasible for the firm.

Recommendations

On the basis of above analysis; the firm is recommended to pursue the project as it is feasible in most of the given scenarios. Moreover, in the normal case; it would bring 3123 million of worth to the firm, with an inclusion of an increase in the firm’s product portfolio in the most dynamic technology industry, which would bring new customers to the firm................................

 

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