Analysis of NPV and its Impact on Market Value of a Corporation

Running head: AUDITIZZ
AUDITIZZ
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Summary of the project...............................................................................................................2
Non discounted payback period of the project............................................................................3
ARR.............................................................................................................................................3
NPV and IRR...............................................................................................................................3
NPV`s sensitivity to changes in price and quantity.....................................................................3
Forecasting risk and implications for a project............................................................................8
Advise to the company................................................................................................................9
NPV and EMH.............................................................................................................................9
Impact of NPV on market value of the corporation....................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
Appendix........................................................................................................................................12

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Introduction
The discounted cash flow analysis can be rightfully described as a method of undertaking
the valuation of an asset by making use of the time value of money. In the given method, the
future cash flows are estimated and then are discounted by making use of the cost of capital so
that it becomes easier to find the present value of the asset (Damodaran 2016). When the sum of
all the future cash flows are taken into consideration, both the incoming as well as the out
coming ones, the net present value is taken as the value of the cash flows.
In this manner, the Net present value of a particular cash flow can be figured out and
helps in finding out the overall value of an asset and helps in finding out whether the purchase of
the asset will be beneficial for the long term of the firm or not (Dang, Li and Yang 2018). The
primary question answered in this procedure is the amount of money to be invested currently at a
given rate of return in order to ensure that the cash flow can be yielded in the future. The report
will undertake an analysis of a project and determine whether the project will be profitable in the
long run or not.
Discussion
Summary of the project
The project is related to the Auditizz Electronics which is an electronic firm as present in
Australia and currently they are seeking to develop a real time translator for which the figures of
the investment have been provided. This helps in understanding the overall investment and the
expected return of the investment.

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Non discounted payback period of the project
The non-discounted payback period of the project can be largely understood to be 2.27
years. The calculation of the same is present in the appendix.
ARR
The Average rate of return for the project was calculated by dividing the average profits
by the average investment as made in the project. The Average rate of return of the project was
calculated as 1.1325%. This means that the firm will get a return of 1.13 cent for every dollar
being invested in the project.
NPV and IRR
The Net present value which was calculated for the project came up to an estimation of
approximately $87949754. This can be stated to be a considerably good return.
The IRR of the project was calculated to be 35%. All the calculations have been provided
in the Appendix.
NPV`s sensitivity to changes in price and quantity
The Net present value can be understood to be the overall present value of the investment
when all the cash inflows and outflows are discounted to the present value using the time value.
It helps in assessing whether it will be better to invest in a project or not. The net present value of
the project can be considered to be related to the price of the project and the quantity of the units
being sold (Fracassi 2016). With respect to this, it can be understood that there exists a direct
relation between the quantity sold of a project and the price of the project with the Net present
value which means that, as the price of a quantity being sold increases, the NPV also increases
and as the quantity increases in numbers, the Net present value increases. This can be understood