1

WePROMOTE.

Name

College Here

Name of Class here

Instructor name here

Assignment Due Date

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WePROMOTE.

My lifelong buddy and I work together as colleagues in the marketing industry's

promotional fabrication industry. Consumers of marketing firms start their promotional activities

or marketing campaigns by visiting our company, WePROMOTE, to purchase the items and

materials needed to support the campaign. You can use published posters, signs, T-shirts with

logos, key chains, and other items as examples of the products and materials you provide. We

provide these products by buying them from other suppliers, or occasionally you produce them

using different tools in a facility you utilize close to the city's heart.

My colleague and I are currently organizing the next significant project for our

organization. The project represents a critical development stage for your company because it

will bring in money for many years. The company will need to invest a sizable sum in starting

the project. The numbers or other data are rough estimates at this early preparation stage. My

partner and I still need to evaluate whether the venture will be worthwhile despite the "hazy

numbers."

Net present value (NPV) is the difference between the actual worth of future earnings

versus withdrawals over time (Fernando, 2020). NPV is utilized in asset and capital planning to

assess a prospective investment's or development's feasibility.

Calculations are carried out to ascertain the current value of a flow of future installments,

or NPV Hofstrand, using the proper discount rate (2013). In general, it is preferable to pursue

ventures with a good Return rather than those with a lower Returns.
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According to my partners' estimated cash inflow, the project has a payback period of 5.7

years with a constant rate of return every year. However, my proposal indicates a payback period

of 5.059 years for the return on the original investment. Before selling the equipment, my

partners' net present value for the project was negative, demonstrating its viability Pinkasovitch

(2022). It indicates a positive net current worth after selling the equipment from my partners'

predicted cash flow but having a reduced margin of under $500. Before selling the parts, my

proposed cash flow shows a positive net present value of the proposed investment project,

indicating that the project is viable. Should the project perform as I expect, it should also have a

positive value and be achievable, but it would take more time and effort to meet the expectations.

My advice for the project is that its viability will depend on how well it performs each

year, which will determine the final assessment during capital budgeting and investment

decision-making. The project has a low to medium chance of succeeding if the cash flows are

distributed between the lowest and highest expectations.

Cash Flow Statement

Option A

Calculation Option A Cash flow Cash + Cash flow

Year 0 (80,000)

Year 1 (80,000) 14,000 (80,000) + 14,000 =

(66,000)

(66,000)

Year 2 (66,000) 14,000 (66,000) + 14,000 =

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(52,000)

(52,000)

Year 3 (52,000) 14,000 (52,000) + 14,000 =

(38,000)

(38,000)

Year 4 (38,000) 14,000 (38,000) + 14,000 =

(24,000)

(24,000)

Year 5 (24,000) 14,000 (24,000) + 14,000 =

(10,000)

Year 6 (10,000) 14,000 (10,000) + 14,000 =

4,000

Year 7 4,000 14,000 4,000 + 14,000 =

18,000

Payback Period

The latest cash flow is divided by the total negative cash flow for the year plus the most

recent negative cash flow.

Year 5 + 10,000/14,000

5 + 0.7 = 5.7 Years

5.7 years is the payback period.

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Option B

Calculation Option B Cash flow Cash + Cash flow

Year 0 (80,000)

Year 1 (80,000) 14,000 (80,000) + 14,000 =

(66,000)

(66,000)

Year 2 (66,000) 16,000 (66,000) + 16,000 =

(50,000)

(50,000)

Year 3 (50,000) 16,000 (50,000) + 16,000 =

(34,000)

(34,000)

Year 4 (34,000) 16,000 (34,000) + 16,000 =

(18,000)

(18,000)

Year 5 (18,000) 17,000 (18,000) + 17,000 =

(1,000)

Year 6 (1,000) 17,000 (1,000) + 17,000 =

16,000

Year 7 16,000 17,000 16,000 + 17,000 =

33,000

Payback period
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The latest cash flow is divided by the total negative cash flow for the year plus the most

recent negative cash flow.

Year 5 + 1,000/17,000

5 + 0.059 = 5.059 Years

5.059 years is the payback period.

Net Present Value

Computation formula

NPV = [Cash flow/[1+i]t] – Initial investment

Cash Flow Option A

Opt

ion

Year Yea Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

r0

Disc 7

ount

rate

Cash (8 14,000 14,000 14,000 14,000 14,000 14,000 14,000

0,0
Flow 00)

Disc (8 (14,000/ (14,000/ (14,000/ (14,000/ (14,000/ (14,000/ (14,000/

0,0
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ounte 00) (1+0.07) (1+0.07) (1+0.07) (1+0.07) (1+0.07) (1+0.07) (1+0.07)

d ^1 = ^2 = ^3 = ^4 = ^5 = ^6 = ^7 =

CFS 13,084.1 12,228.1 11,428.1 10,680.5 9,981.81 9,328.79 8,718.50

1 4 7 3

NPV = Capital – Discounted CFS

= 80,000 – [ 13,084.11 + 12,228.14 + 11,428.17 + 10,680.53 + 9,981.81 + 9328.79 +

8,718.50]

NPV Before selling Parts

= 75,450.05 – 80,000

= (4,549.95)

NPV After selling Parts

= (4,549.95) + 5000

= 450.05

Cash Flow Option B

Opt

ion

Year Yea Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

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r0

Disc 7

ount

rate

Cash (8 14,000 16,000 16,000 16,000 17,000 17,000 17,000

0,0
Flow 00)

Disc (8 (14,000/ (16,000/ (16,000/ (16,000/ (17,000/ (17,000/ (17,000/

0,0
ounte 00) (1+0.07) (1+0.07) (1+0.07) (1+0.07) (1+0.07) (1+0.07) (1+0.07)

d ^1 = ^2 = 13, ^3 = ^4 = ^5 = ^6 = ^7 =

CFS 13,084.1 975.02 13,060.7 12,206.3 12,120.7 11,327.8 10,586.7

1 7 2 7 2 5

NPV = Capital – Discounted CFS

= 80,000 – [ 13,084.11 + 13,975.02 + 13,060.77 + 12,206.32 + 12,120.77 + 11,327.82 +

10,586.75]

NPV Before selling parts

= 86,361.56 – 80,000

= 6,361.56

NPV After selling Parts

= 6,361.56 + 5,000
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= 11,361.56

References

Fernando, J. (2020). Net Present Value (NPV). Investopedia.

https://www.investopedia.com/terms/n/npv.asp#:~:text=Net%20present%20value

%20(NPV)%20is

Hofstrand, D. (2013, August). Capital Budgeting Basics | Ag Decision Maker.

Www.extension.iastate.edu. https://www.extension.iastate.edu/agdm/wholefarm/html/c5-

240.html

Pinkasovitch, A. (2022, January 27). An Introduction to Capital Budgeting. Investopedia.

https://www.investopedia.com/articles/financial-theory/11/corporate-project-valuation-

methods.asp