Sneakers 2013 Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Sneakers 2013 Case Study Help

Net Present Value: The NPV of the Persistence Project is estimated at -$15.53 million,which was evaluated through the use of 14% discount rate. The NPV is based on the total cash flows earned during the project period of three years. The initial investment used in the NPV analysis does not include the working capital required of $15 million,by the end of year zero as the cash flows occurring at the end of the year are presented at the start of the next year, as the discount factor of whole year is used. The negative NPV shows that the project would not be viable and feasible for the company in the near future.

Internal Rate of Return (IRR): The Persistence Project’s internal rate of return is estimated to be -10.79%, which has been calculated the present value, discounted at 14% rate. Considering the fact that the IRR is negative as compared to the discount rate and IRR of the sneakers project;the persistence project would not be unacceptable by the company.

Additional questions

Question 1

The Persistence project seems to be a risky investment for the company, on the ground of the negative NPV and negative IRR. The difference in the risk of two projects need to be incorporated on the basis of IRR, NPV, future cash flows and payback period. By doing so, the company would be at ease while selecting the most viable and feasible project and cancelling the least profitable one. The difference in risk could be incorporated through analyzing maturity and familiarity of the market.

Question 2

From the quantitative standpoint; the net present value (NPV) of Sneakers 2013 Project is greater than zero or higher than Persistence Project, which makes the project feasible and implies the profitability of the project or projected investment. Furthermore, the IRR of the project is 52%, which is greater than the IRR of Persistence project, which implies the greater amount by which it is expected to have an exceedin the weighted average cost of capital and generate higher series of cash inflows to the company. On the other hand, the IRR of Persistence Project is -10.79% percent, which is not greater than the cost of capital i.e. 14%, which means that the economic returns would not be better as compared to the initial cost of capital. Thus, the Sneakers 2013 project is viable from both qualitative and quantitative standpoints. Investing in Sneakers 2013 project would allow the company to maximize the wealth of the investors.

Question 3

Ms. Rodriguez needs to be more critical about the cash flow forecast of the Sneakers project due to the fact that the company would accept the Sneakers project and the critical analyzation of the Sneakers’ cash flow tends to provide more accurate picture of the project’s feasibility over the Persistence Project.

Question 4

Taking under consideration the quantitative analysis; the Persistence Project is more risky than Sneakers 2013, because the market is unfamiliar, immature and new. Also, the company has enough experience and expertise in the field of Sneaker shoes’ market. Both projects are assessed and evaluated based on NPV, cash flow streams and internal rate of return. The net present value (NPV) of Persistence Project is lower than the Persistence Project, which does not make the project feasible and implies the unfeasibility of the project or projected investment. On the other hand, the IRR of Persistence Project is negative,which means that the economic returns would not be better off as compared to the initial cost of capital. Thus, Ms. Rodriguez is recommended to select the Sneakers 2013 project, because it is viable from both qualitative and quantitative aspects.....................................

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