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Introduction for the assignment:
You and your lifelong friend are partners together in the promotional materials business. That is, when marketing firms and their clients begin advertising or public relations campaigns, they come to your company to obtain the materials and products that would support the ad campaign. Examples of the materials and products you supply are printed posters, signs, T-shirts with printed logos, key chains, and other such items. You supply these items by procuring them from other sources or in some cases you manufacture them using various equipment in a warehouse you use near the center of the city. Your company’s name is WePROMOTE.
You and your business partner are planning the next major project for your company. The project is a significant step in the growth of your firm in that the project will generate cash inflows into the firm for many years into the future. However, there will be a large investment of funds required by the firm to launch the project. The planning is in its preliminary stages where the numbers and other data are gross estimates. Despite the “fuzzy numbers”, you and your partner still need to decide whether the project will be worth pursuing.
NPV calculations:
Below are the calculations using first the estimates that the partner provided, the calculations were made by using a calculation tool (easycalculation.com), so the information was inputted into the tool and the calculations were made.
Discount Rate 6%, Initial Investment Amount \$75,000, Number of Years 7 (Partners estimate)
Year Cash Flow Present Value
1 15000 14150.94
2 15000 13349.95
3 15000 12594.29
4 15000 11881.40
5 15000 11208.87
6 15000 10574.41
7 15000 9975.86
NPV = \$8,735.72
Discount Rate 6%, Initial Investment Amount \$75,000, Number of Years 7 (My estimate)
Year Cash Flow Present Value
1 14000 13207.55
2 14000 12459.95
3 15000 12594.29
4 15000 11881.40
5 17000 12703.39
6 17000 11984.33
7 17000 11305.97
NPV = \$11,136.88
There are many errors that can happen when making the NPV calculations, these are usually in the area of deciding on the estimated numbers. In this case, since we have the actual cost of the equipment that is one area we do not have to be concerned. The rate is the next concern, since we are applying this over a period of seven years, will that rate be okay for the entire period? The last one is the return on the project, most people want to be optimistic, but you have to be concerned that the person providing the numbers was not being overly optimistic.
Conclusion
The fact that both NPV calculations are positive, shows that the company would be paying less than what the equipment is worth. The decision using the numbers that I think are more appropriate is the best way to go, since it is the highest number. I would tell the partner that the project seems viable, and that even with the difference of \$2,401.16 in our estimates that project should continue on and we are now in business for the next seven years!

References
Gallo, A., ; Wessel, M. (2014, November 19). A Refresher on Net Present Value. Retrieved September 17, 2018, from https://hbr.org/2014/11/a-refresher-on-net-present-value

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Holtzman, M. P. (n.d.). Calculate NPV with a Series of Future Cash Flows. Retrieved September 17, 2018, from https://www.dummies.com/business/operations-management/calculate-npv-with-a-series-of-future-cash-flows/

Net Present Value Calculator English Español. (n.d.). Retrieved September 17, 2018, from https://www.easycalculation.com/finance/net-present-value.php

Schmidt, R. (2015, June 11). What is NPV and How Does It Work? Retrieved September 17, 2018, from https://www.propertymetrics.com/blog/2015/06/11/what-is-npv/

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