A guide to the Case study on WePROMOTE and the economic feasibility of its new project. The calculations include NPV method and Discounted rate. Sufficient explanation, recommendations, and references provided.
The case primarily focuses on a company called WePROMOTE and the economic feasibility of
its new project. The company was founded by me and a close friend to provide promotional
materials for marketing firms. The promotional materials are acquired through procuring from
other firms and by manufacturing them in our warehouse. The new project is believed to bring
significant cash inflow to our business. However, I and my partner have some disagreements
with the estimated cash flows. Consequently, a net present value (NPV) analysis will be done for
both data and the result compared. Based on the result a recommendation is drawn to proceed
with the project or not.
Net Present Value (NPV) Analysis
Net present value (NPV) is the difference between the cash inflows and outflows over a period of
time brought to the present (Fernando, 2021). NPV is used to analyze multiple investment
options and see which one will be more profitable. It is also used for capital budgeting or to
check if a new project will be profitable or not. It would give us the present value of future cash
flows for a project and their net present value.
One of the main features of NPV is that it accounts for the time value of money (Fernando,
2021). Hence, we can compare two or more alternative investments with a defined useful life. It
used a discounted rate to account for the change in the value of money through time. We use a
higher discounted rate for a project that is riskier (Corporate Finance Institute, 2022). If the NPV
is negative it means the investment is not profitable and when comparing several investments
options we chose the one with the highest NPV.
However, NPV is not a perfect solution and has a certain degree of error. As explained above,
NPV is dependent on data regarding the future which is always open for error. Information
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