5111 W2 shall wePromote pw financial management

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1 Shall wePromote? University of the People BUS 5111– Financial Management Dr. Rebecca Attah November 29, 2023

2 Shall WePROMOTE? At WePROMOTE, we stand at the forefront of innovation in the promotional materials market. My partner and I are currently considering a significant investment opportunity that promises to deliver substantial long-term returns. This paper critically examines the financial viability of this capital project through an in-depth Net Present Value (NPV) analysis, weighing two different projections of cash inflow. Project Overview and Preliminary Estimates The project under consideration requires an $80,000 capital investment, with an anticipated $5,000 salvage value at the end of the project life cycle. We project the investment to yield cash flows across a seven-year period. The estimates under review include my partner’s conservative annual forecast of $14,000 versus a more dynamic projection, which anticipates an increase from $14,000 in year one to $17,000 in the final years. A discount rate of 7% reflects the time value of money and our required rate of return. Net Present Value (NPV) Calculation Methodology The NPV method is employed to evaluate the profitability of long-term investments by discounting future cash flows back to their present value. By applying a 7% discount rate, the NPV provides a clear indicator of the potential for return on investment, allowing for an informed decision about proceeding with the project (Brealey, Myers, & Allen, 2020). Net Present Value (NPV) Calculations Table 1: NPV Calculations based on Partner's and My Estimates Year Partner's Estimate My Estimate Partner's PV My PV 0 $ (80,000.00) $ (80,000.00) $ (80,000.00) $ (80,000.00) 1 $ 14,000.00 $ 14,000.00 $ 13,084.11 $ 13,084.11

3 2 $ 14,000.00 $ 16,000.00 $ 12,228.14 $ 13,975.02 3 $ 14,000.00 $ 16,000.00 $ 11,428.17 $ 13,060.77 4 $ 14,000.00 $ 16,000.00 $ 10,680.53 $ 12,206.32 5 $ 14,000.00 $ 17,000.00 $ 9,981.81 $ 12,120.77 6 $ 14,000.00 $ 17,000.00 $ 9,328.79 $ 11,327.82 7 $ 14,000.00 $ 17,000.00 $ 11,832.25 $ 13,700.49 NPV $ (1,436.20) $ 9,475.30 The contrasting NPV calculations paint two different financial outcomes. The conservative estimate proposed by my partner results in an NPV deficit of $1,436.20, raising questions about the project’s financial soundness. In contrast, my more optimistic projection shows a positive NPV of $9,475.30, suggesting a potentially rewarding investment. Analysis and Interpretation of NPV Results The NPV calculations highlight the project’s sensitivity to revenue forecasting. While my partner's conservative figures suggest caution, my projections, grounded in a more robust market analysis, suggests a compelling investment opportunity. The difference in NPV underscores the importance of accurate forecasting and aligns with industry findings that companies often benefit from scaling projections based on market trends and historical performance (Damodaran, 2012). Rationalizing the Project to My Partner In discussing the project with my partner, the key point I emphasize is the positive Net Present Value (NPV) achieved from my projections. This positive NPV is not merely indicative of the project’s potential profitability; it also reflects our company's capability to optimize investment returns. It demonstrates that with well-informed estimates, we can achieve better financial outcomes than initially anticipated.

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4 Furthermore, an adjustment in our assumptions, specifically a reduction in the required rate of return from 7% to 6.5%, alters the project's financial outlook even under my partner's conservative estimates. This change results in a slight positive NPV, suggesting that the project's success is not far-fetched but rather within reach with a small shift in our financial assumptions. This subtle yet significant finding reinforces the feasibility of the project and aligns with a cautious yet forward-thinking approach to our business growth. Summary and Conclusion Upon careful examination of the NPV values, particularly the encouraging figure of $9,475.30 from my projections, the data steers us towards a cautious yet optimistic approach to the project. It suggests a strategic focus on incrementally growing revenues year after year rather than relying on a static cash flow model. While NPV undoubtedly offers valuable financial insights, it's crucial to remember that it doesn't tell the entire story. The project stands to not just bring in quantifiable cash inflows but also to significantly bolster our brand's power and presence in the market. These intangible assets, though not directly quantifiable in NPV calculations, play a pivotal role in our long-term strategic positioning and have the potential to unlock additional value for WePROMOTE. Therefore, it is imperative to consider this project not just through the lens of immediate financial returns but also in terms of its alignment with our overarching goals for sustainable growth and market leadership (Berk & DeMarzo, 2019).

5 References Brealey, R. A., Myers, S. C., & Allen, F. (2017). Principles of Corporate Finance (13th ed.). McGraw-Hill Education. Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset (3rd ed.). Wiley. Berk, J. B., & Demarzo, P. M. (2019). Corporate finance (5th ed.). Pearson. Ross, S. A., Westerfield, R., & Jordan, B. D. (2022). Fundamentals of Corporate Finance (13th ed.). McGraw-Hill Education.

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