Worldwide Paper

For the purpose of calculating the net present value of the project, an appropriate cost of capital has to be calculated at which free cash flows of the project should be discounted. Since the project will be solely financed by selling new shares, cost of equity will be used as the discount rate. Beta for the company can be assumed to be equal to average of the betas of the competitors of the company. This average beta value comes out to be 1.2. Risk free rate is 0.17% while risk premium has been estimated to be 6%. Thus by putting these values in CAPM formula, we can find the cost of equity for the company which is 7.39%.

Then we can use the following formula to calculate the WACC. The cost of debt is taken to be on an after tax basis to further to account for the depreciation tax shield.

The cost of equity is the theoretical return that equity investors expect or receive from the company for investing their funds in the company. The risk free rate that is the Government Treasury bill rate is 3.1%, the market risk premium is 7% and the beta has been calculated as

In December 2006, Bob Prescott, the controller for the Blue Ridge Mill, was considering the addition of a new on-site longwood woodyard. Two primary benefits for this new addition include eliminating the need to purchase shortwood from an outside supplier and creating an opportunity to sell shortwood on the open market. Also, the new woodward would reduce operating costs and increase revenues. Blue Ridge Mill currently purchased

We use Capital Asset Pricing Model (CAPM) approach to calculate the cost of equity. The formula of CAPM is re = rf + β × (E[RMkt] – rf).

WACC= (%of debt) (after-tax cost of debt) + (% of preferred stock)(Cost of preferred stock) + (% of common equity) (Cost of common equity)

Given these approximations, the CAPM model would total the risk-free rate and the market risk premium times beta to arrive at a cost of equity of 9.68%, which reflects the investors’ expected return from investing in shares of the company.

I used WACC as the discount factor, we expect the rate of return to be higher than it, the same at least. The WACC reflects the average risk and overall capital structure of the entire firm [2]. It’s the required return and it presents how much the company pays for the capital it finances. In this case, the cost of equity is 10.33%, the cost of debt is 6.50%. I calculated WACC using those numbers and got a result of 8.49%.

7) See Table 1 NPV=42,318.71 IRR = 14% MIRR = 12% Payback period= 2.93 years. Yes the project should be undertaken.

In order to find the WACC, we need to find the cost of the components of the capital structure and their proportion in the total capital.

Lastly, the interest rate was calculated by dividing interest expense by long-term debt for the company. These numbers, along with equity and debt data given to us in the case, resulted in a WACC of 13.89%.

The project has a positive net present value of $46.59 million. As such, the project should be accepted. The reasoning behind this is that the company should accept any project if the NPV is above 0. The NPV reflects value added to the company. Management, therefore, should pursue any project that adds value to the company and that means pursuing projects with a positive NPV. A positive NPV will increase shareholder wealth, and a negative NPV will reduce shareholder wealth (Baker, 2000).

The largest paper company in the world sits right here in Memphis, Tennessee, International Paper Company. They manufacture in North America, Europe, Latin America, Asia and North Africa. International Paper was established in 1898 and has grown to house 113,000 employees. The company achieves their success from the goals they stand for: “Good corporate governance is the foundation upon which we build and achieve our goals. We create an awareness of the importance of diversity, ethical behavior and personal integrity, which are our foundation. We support hundreds of community-based educational, civic and

If we are only looking at the financial implications of investing in the company using the expected IRR and NPV we may be fooled into thinking this new television program would be a great investment. Even if our WACC were 20%, we can expect the NPV of the project to be $1,716,414. When we look at discounted payback, however, we see that at a WACC of 20% the project payback period would be a little over 4 years and even the simple payback period is 3 years (see exhibit 2). This

barriers for imports and exports between each other may be a possible threat to India’s United Kingdom market. Since the UK can virtually import anything from its neighboring countries without any cost, it might affect the demand of cashew nuts –the Europeans may divert their attention from cashew nuts to other products popular in its neighboring countries. India’s competitiveness could also be threatened by