Nghe An Tate & Lyle Sugar Co. (Vietnam) Harvard Case Solution & Analysis

SENSITIVITY OF EARNINGS BEFORE INTEREST BUT AFTER TAXES (EBIAT) TOWARDS THE NPV OF THE PROJECT:

  • In the case of the Real Rate, if the estimate about the earnings before interest, but after taxes (EBIAT) of the project is wrong and decreased by around 41%, then the NPV will fall to Zero and if decreased by more than 41% then the project will not remain viable, hence causing negative NPV.
  • In case of the Nominal Rate, if their estimates of earnings before interest, but after taxes (EBIAT) of the project is decreased by 51%, the NPV will fall to Zero and if decreased by more than 51% then the project will not remain viable, hence causing negative NPV.

SENSITIVITY OF INITIAL INVESTMENT / CAPITAL EXPENDITURE TOWARDS THE NPV OF THE PROJECT:

  • In the case of the Real Rate, if the estimate about the Capital Expenditure over the life of the proposed project is wrong and increased by around 57%, then the NPV will fall to Zero and if increased by more than 57%, then the project will not remain viable, hence causing negative NPV.
  • In case of the Nominal Rate, if the estimate about the Capital Expenditure over the life of the proposed project is wrong and increased by 59%, the NPV will fall to Zero and if increased by more than 59% then the project will not remain viable, hence causing negative NPV.

SENSITIVITY OF NET WORKING CAPITAL TOWARDS THE NPV OF THE PROJECT:

  • In the case of the Real Rate, if the estimate about the Incremental Net Working Capital over the life of the proposed project is wrong and increased by around 873%, then the NPV will fall to Zero and if increased by more than 873%, then the project will not remain viable, hence causing negative NPV. So it should not be an area of concern for the project appraisers.
  • In case of the Nominal Rate, if the estimate about the Incremental Net Working Capital over the life of the proposed project is wrong and decreased by 938%, the NPV will fall to Zero and if decreased by more than 938% then the project will not remain viable, hence causing negative NPV. So it should not be an area of concern for the project appraisers.

SENSITIVITY OF TERMINAL VALUE TOWARDS THE NPV OF THE PROJECT:

  • In the case of the Real Rate, if the estimate about the Terminal Value over the life of the proposed project is wrong and increased by around 135%, then the NPV will fall to Zero and if increased by more than 135%, then the project will not remain viable, hence causing negative NPV. So it should not an area of concern for the project appraisers.
  • In case of the Nominal Rate, if the estimate about the Terminal Value over the life of the proposed project is wrong and decreased by 216%, the NPV will fall to Zero and if decreased by more than 216% then the project will not remain viable, hence causing negative NPV. So it should not be an area of concern for the project appraisers.

SENSITIVITY OF DISCOUNT RATE TOWARDS THE NPV OF THE PROJECT:

  • In the case of the Real Rate, the Internal Rate of Return is 19% of the proposed project, which means that if the rate is less than 19%, the NPV will remain positive.At the rate of 19%, the NPV the proposed project will be on breakeven condition, i.e. neither positive nor negative, but if the rate is increased by more than 19%, then the project will not remain viable, hence causing negative NPV.
  • In the case of the Nominal Rate, the Internal Rate of Return is 18% of the proposed project, which means that till the rate is less than 18%, the NPV will remain positive.At the rate of 18%, the NPV the proposed project will be on breakeven condition, i.e. neither positive nor negative, but if the rate is increased by more than 19%, then the project will not remain viable, hence causing negative NPV. It should be an area of concern for the project appraisers.

As per the calculations, the most vulnerable area towards the Net Present Value and the viability of the project is the estimate of the Total Revenues followed by the sensitivity of the Total Expenses and then the sensitivity towards the Discount Rate of the proposed project...................................

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