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An Investment Analysis Case Study

This document provides an investment analysis case study for a potential investment in an iTV project by Apple. It includes: - A summary of key metrics like decision to invest/not invest, cost of capital, return on capital, 10-year NPV, and longer life NPV. - Questions about estimating operating income and return on capital over 10 years to determine if the project should be accepted or rejected. - Estimating after-tax cash flows and NPV over 10 years and longer life, including developing NPV profiles and IRR. - Analyzing the sensitivity of assumptions like key inputs to changes and making a final decision to accept or reject the project.

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Mary Joy Domantay
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1K views

An Investment Analysis Case Study

This document provides an investment analysis case study for a potential investment in an iTV project by Apple. It includes: - A summary of key metrics like decision to invest/not invest, cost of capital, return on capital, 10-year NPV, and longer life NPV. - Questions about estimating operating income and return on capital over 10 years to determine if the project should be accepted or rejected. - Estimating after-tax cash flows and NPV over 10 years and longer life, including developing NPV profiles and IRR. - Analyzing the sensitivity of assumptions like key inputs to changes and making a final decision to accept or reject the project.

Uploaded by

Mary Joy Domantay
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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An Investment Analysis Case Study

Summary information on the analysis: Decision on Investment: Invest or Do not invest Cost of capital: % value Return on capital: % value NPV 10-year life: $ value NPV- Longer life: $ value To keep time straight, you can assume the following: Next year: Year 1 Most recent year: Just ended Right now: Time 0

Questions on the Project


1. Accounting Return Analysis Estimate the operating income from the proposed iTV investment to Apple over the next 10 years. Estimate the after-tax return on capital for the investment over the 10-year period. Based upon the after-tax return on capital, would you accept or reject this project? (This will require you to make some assumptions about allocation and expensing. Make your assumptions as consistent as you can and estimate the return on capital.) 2. Cash Flow Analysis Estimate the after-tax incremental cash flows from the proposed iTV investment to Apple over the next 10 years. If the project is terminated at the end of the 10th year, and both working capital and investment in other assets can be sold for book value at the end of that year, estimate the net present value of this project to Apple. Develop a net present value profile and estimate the internal rate of return for this project. If the iTV division is expected to have a life much longer than 10 years, estimate the net present value of this project, making reasonable assumptions about investments needed and cash flows. Develop a net present value profile and estimate the internal rate of return for this project. 3. Sensitivity Analysis Estimate the sensitivity of your numbers to changes in at least three of the key assumptions underlying the analysis (You get to pick what you think are the three key assumptions).Based upon your analysis, and any other considerations you might have, tell me whether you would accept this project or reject it. Explain, briefly, your decision.

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