# Bwff6013 seminar in finance case study the lazy mower

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BWFF6013: Seminar In Finance Case Study: The Lazy Mower: Is It Really Worth It? 6 Question 7 Calculate the IRR of the project. Based on your calculations what would you recommend? Why? Based on the calculations, the IRR of the project is 61% and the weighted average cost of capital is 14%, this project should be accepted. Moreover, IRR can be used to make decision when evaluating a project which is if the IRR exceeds the firm’s cost of capital the project should be accepted. Meanwhile, if it is less than the firm’s cost of capital it shall be rejected. Since the IRR calculated is more than the cost of capital, it shows that the project is able to provide positive cash flows in the future. As for the worst case scenario, the computed IRR is 51.73% which still exceeds the given cost of capital of 14%. And thus, it can be concluded that the project shall be accepted as the IRR calculated for both scenarios of best and worse are greater than the cost of capital which is supported by a study done by Brigham and Ehrhardt (2009). Question 8 How sensitive is the Net Present Value of the project to the cost of capital? 0% 20% 40% 60% 80% 100% 120% (20,000,000.00) - 20,000,000.00 40,000,000.00 60,000,000.00 80,000,000.00 100,000,000.00 120,000,000.00 Sensitivity Analysis of NPV to Cost of Capital NPV Cost of Capital Net Present Value
BWFF6013: Seminar In Finance Case Study: The Lazy Mower: Is It Really Worth It? 7 The graph above shows the sensitivity analysis between net present value and cost of capital for the project. It shows that there is a negative relationship between the net present value and the cost of capital which is the higher the cost of capital, the lower the net present value. Not only that, the net present value is seen to still have positive value when the cost of capital is below 60%. When the cost of capital exceeds 60%, the net present value hit below 0. Moreover, the graph indicates that the net present value was too sensitive when the net present value remains positive to the cost capital. It was worth to the company since the net present value show the positive result until cost of capital was 60%. But after that the net present value was less sensitive when the net present value show the negative result (Nicholas H. Johnson 1, 2010) .Moreover there were more sensitivity result reflected between the net present value and the cost capital since the IRR is more than cost of the capital. Question 9 Calculate the operating leverage entailed by this project. What does it indicate? Operating Leverage ¿ quantity × ( price variablecosts per unit ) [ quantity × ( price variable costs perunit ) ] ¿ costs ¿ 30,000 × ( 1000 400 ) [ 30,000 × ( 1000 400 ) ] 1,620,000 ¿ 1.0989
BWFF6013: Seminar In Finance Case Study: The Lazy Mower: Is It Really Worth It?
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