2 Not only are the deliveries declined the changes of decrease are bigger and

2 not only are the deliveries declined the changes of

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order numbers; the new table is attached as the Table.2. Not only are the deliveries declined, the changes of decrease are bigger and bigger from year 1 to year 3. In Table.2, the net present value (NPV) is negative (-$15015), and the internal rate of return (IRR) is smaller than the cost of capital. If the conservative estimated delivery amounts are very possible to happen, I will not suggest you to accept the project. On additional, I tried to add 100 deliveries on every conservative estimations separately, and so that the orders would change to be 600 per week in year one, or 1300 per week in year two, or 1700 per week in year three. Only when the change of 100 orders in year one would lead to a positive NPV and a IRR of 24.4%. We can see that the NPV is more sensitive to the order in more recent year because of the discount rate. Combine the Table.1, Table.2 and my test on Table.2 above; my final recommendation is to accept the project. Because the absolute value of NPV in Table.1 is much less than that in Table.2, although the result of Table.2 is not profitable. So I also strongly recommend that we should try to increase the order numbers to guarantee the profit.
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Table.1 Table.2
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  • Spring '14
  • Apland,Jeffrey

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