- Please Show All Of Your Work And Be Detailed 1 (178.74 KiB) Viewed 56 times
Please show all of your work and be detailed!
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answerhappygod
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Please show all of your work and be detailed!
Please show all of your work and be detailed!
Part 2: In Lecture 1 Part 1, we outlined three aspects of the Cash Flow statement/analysis that impact the value of an investment. These are: (1) Amount of expected cash flows (bigger is better); (2) Timing of the cash flow stream (sooner is better); and (3) Risk (riskiness) of the cash flows (less risk(y) is better). We have noted that these aspects only work 'in general' or 'holding everything else constant' and that there are plenty of the reasons why they may fail to deliver higher value of an investment project to a firm. But we did not discuss specific examples of the causes of such instances. Suppose you work as a project manager for a company and are tasked to evaluate (at a high level) a proposed investment project that involves scaling up your existent operation to double output of your core product. There is no new technology, nor new know-how involved. Suppose doubling output requires doubling the costs of production. Doubling output will increase sales, but we do not know how much such an increase may be. Q1: Why, in your opinion, can the project be problematic for your firm to undertake from the perspective of the three aspects listed above? Q2: Now, suppose the investment project is expected to generate higher cash flows once installed. Why, in your opinion, this may not be enough to lift up the overall value of the project to the company to the point where the firm will unambiguously pursue the new investment? Discuss your answers.
Part 2: In Lecture 1 Part 1, we outlined three aspects of the Cash Flow statement/analysis that impact the value of an investment. These are: (1) Amount of expected cash flows (bigger is better); (2) Timing of the cash flow stream (sooner is better); and (3) Risk (riskiness) of the cash flows (less risk(y) is better). We have noted that these aspects only work 'in general' or 'holding everything else constant' and that there are plenty of the reasons why they may fail to deliver higher value of an investment project to a firm. But we did not discuss specific examples of the causes of such instances. Suppose you work as a project manager for a company and are tasked to evaluate (at a high level) a proposed investment project that involves scaling up your existent operation to double output of your core product. There is no new technology, nor new know-how involved. Suppose doubling output requires doubling the costs of production. Doubling output will increase sales, but we do not know how much such an increase may be. Q1: Why, in your opinion, can the project be problematic for your firm to undertake from the perspective of the three aspects listed above? Q2: Now, suppose the investment project is expected to generate higher cash flows once installed. Why, in your opinion, this may not be enough to lift up the overall value of the project to the company to the point where the firm will unambiguously pursue the new investment? Discuss your answers.