Analysis of Options for Recyclable Packaging in DuoLever Limited

This document provides an analysis of the options available for DuoLever Limited to adopt recyclable packaging in their business. It includes a calculation of net present value for each option and a scenario analysis. The document also discusses the uncertainty analysis and provides recommendations for the company.

Running Head: FINANCE 0
Finance
(Student Name)

FINANCE 1
Table of Contents
Memo...............................................................................................................................................2
Introduction......................................................................................................................................2
Analysis...........................................................................................................................................2
1st Option......................................................................................................................................3
Uncertainty Analysis................................................................................................................4
2nd Option.....................................................................................................................................4
Uncertainty Condition..............................................................................................................6
Recommendations............................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................8

FINANCE 2
Memo
TO: DuoLever CEO
FROM- (Student Name)
DATE- May 16, 2018
Introduction
In recent scenario, most of the companies have adopted various means to achieve growth and
success in the market. They ignore its responsibilities towards the environment and society that
harm the environment at greater level. The number of plastic consumption by the companies is
increasing day by day that affected overall environment at greater level (Hayward et al., 2017).
One of the companies DuoLever Limited is one of the company that deal in the personal care
products. The company offer variety of personal products to their consumers that are related to
skin as well as hair products. The company uses plastic for packaging their products. However,
the company has decided to use recyclable products in their business to take initiatives towards
sustainable business.
In the following part there will be detailed analysis of the Option that the company can use to
produce recyclable products for their business

FINANCE 3
Analysis
While adopting recyclable Option in its business, the company is required to analyze which
option is required for the company to adopt. They can either add production of recycled sachet
plastic to the portfolio of business or can also give license use of the patented Option.
First Option
Calculation of net present value
0 1 2 3 4 5
Ye
ar
0
Ye
ar
1
Ye
ar
2
Ye
ar
3
Ye
ar
4
Ye
ar
5
$'0
00
$'
00
0
$'
00
0
$'
00
0
$'
00
0
$'
00
4
Cash inflows
Sales
revenue
4.
16
4.
33
4.
50
4.
68
4.
77
Saving
in
3.
30
3.
40
3.
60
3.
71
3.
83

FINANCE 4
Variabl
e Cost
TOTA
L
INFLO
WS
7.
46
7.
73
8.
10
8.
39
8.
60
Less:
Machin
ery cost
20.
00
Interest
1.
40
1.
40
1.
40
1.
40
1.
40
Selling,
Admini
strative
and
General
Expens
es
2.
00
2.
00
2.
00
2.
00
2.
00

FINANCE 5
Depreci
ation
4.
00
4.
00
4.
00
4.
00
4.
00
NPBT
-
20.
00
0.
06
0.
33
0.
70
0.
99
1.
20
Less: Tax @ 25%
0.
01
0.
08
0.
18
0.
25
0.
30
NPAT
0.
04
0.
24
0.
53
0.
75
0.
90
Add:
Capital
allowan
ces
4.
00
4.
00
4.
00
4.
00
4.
00
Net cash outflow
-
20.
00
4.
05
4.
24
4.
53
4.
75
4.
90
8% discount rate 1.0
00
0.
92
0.
85
0.
79
0.
73
0.
68

FINANCE 6
6 7 4 5 1
Present value
-
20.
00
3.
75
3.
64
3.
59
3.
49
3.
33
NPV
-
2.
20
Calculation of net present value (Worst Case Scenario)
0 1 2 3 4 5
Ye
ar
0
Ye
ar
1
Ye
ar
2
Ye
ar
3
Ye
ar
4
Ye
ar
5
$'0
00
$'
00
0
$'
00
0
$'
00
0
$'
00
0
$'
00
4

FINANCE 7
Cash inflows
Sales
revenue
4.
16
4.
33
4.
50
4.
68
4.
77
Saving
in
Variabl
e Cost
3.
30
3.
40
3.
60
3.
71
3.
83
TOTA
L
INFLO
WS
7.
46
7.
73
8.
10
8.
39
8.
60
Total
Cash
Inflow
in
worst
case
6.
71
6.
95
7.
29
7.
55
7.
74
Less:
Machin
ery cost
20.
00

FINANCE 8
Interest
1.
40
1.
40
1.
40
1.
40
1.
40
Selling,
Admini
strative
and
General
Expens
es
2.
00
2.
00
2.
00
2.
00
2.
00
Depreci
ation
4.
00
4.
00
4.
00
4.
00
4.
00
NPBT
-
20.
00
-
0.
69
-
0.
45
-
0.
11
0.
15
0.
34
Less: Tax @ 25%
-
0.
17
-
0.
11
-
0.
03
0.
04
0.
08
NPAT - - - 0. 0.

FINANCE 9
0.
51
0.
34
0.
08 12 25
Add:
Capital
allowan
ces
4.
00
4.
00
4.
00
4.
00
4.
00
Net cash outflow
-
20.
00
3.
49
3.
66
3.
92
4.
12
4.
25
8% discount rate
1.0
0
0.
93
0.
86
0.
79
0.
74
0.
68
Present value
-
20.
00
3.
23
3.
14
3.
11
3.
03
2.
89
NPV
-
4.
60
Calculation of net present value (Best Case Situation)

FINANCE 10
0 1 2 3 4 5
Ye
ar
0
Ye
ar
1
Ye
ar
2
Ye
ar
3
Ye
ar
4
Ye
ar
5
$'0
00
$'
00
0
$'
00
0
$'
00
0
$'
00
0
$'
00
0
Cash inflows
Sales
revenue
4.
16
4.
33
4.
50
4.
68
4.
77
Saving
in
Variabl
e Cost
3.
30
3.
40
3.
60
3.
71
3.
83
TOTA
L
INFLO
7.
46
7.
73
8.
10
8.
39
8.
60

FINANCE 11
WS
Total
Cash
Inflow
in best
case
8.
21
8.
50
8.
91
9.
23
9.
46
Less:
Machin
ery cost
20.
00
Interest
1.
40
1.
40
1.
40
1.
40
1.
40
Selling,
Admini
strative
and
General
Expens
es
2.
00
2.
00
2.
00
2.
00
2.
00

FINANCE 12
Depreci
ation
4.
00
4.
00
4.
00
4.
00
4.
00
NPBT
-
20.
00
0.
81
1.
10
1.
51
1.
83
2.
06
Less: Tax @ 25%
0.
20
0.
27
0.
38
0.
46
0.
51
NPAT
0.
60
0.
82
1.
14
1.
37
1.
54
Add:
Capital
allowan
ces
4.
00
4.
00
4.
00
4.
00
4.
00
Net cash outflow
-
20.
00
4.
60
4.
82
5.
14
5.
37
5.
54
8% discount rate
1.0
0
0.
93
0.
86
0.
79
0.
74
0.
68

FINANCE 13
Present value
-
20.
00
4.
26
4.
14
4.
08
3.
95
3.
77
NPV
0.
20
Determination of NPV under Scenario Analysis
Determination of NPV
under Scenario Analysis
Cases NPV
Best Case 0.20
Base Case -2.20
Worst Case -4.60

FINANCE 14
It is assumed that the sales will increase by 10%. Such increment has
probability of 30%
It is assumed that the base sales will have probability of 50%
It is assumed that the sales will be decreased by 10%. Such decrement has
probability of 20%
Therefore if such situation occur then the final NPV will be -$1.96009
Therefore, while analyzing such option, it has been found that if company will adopt first Option
in which they invest amount in manufacturing of renewable packaging by their own then the new
percent value of the company will be -$2.20. It represent that the company will not earn
sufficient profit and growth while adopting such Option in their business in an effective and
efficient manner. It will not be the effective Option for the company to enhance their
performance. In such Option, the company will produce recycle packaging by their own under
which they will invest huge amount in setting up the plant and machinery. Thus, it cannot be the

FINANCE 15
effective Option for the company to adopt in their business to earn maximum profit (Zore et al.,
2018).
Uncertainty Analysis
It is the condition when the company can earn profit or loss in their business. While assuming
that if sales will decline to the 10% then the company can face huge level of loss that can affect
overall performance of the company at greater level. However, if the sales of the company
increases by 10% then it will give huge number of profit to the company there will be huge
change in the profit margin of the company that can enhance overall performance of the
company in an effective manner.
Second Option
Calculation of net present value base case
0 1 2 3 4 5
Year
0
Year
1
Year
2
Year
3
Y
ea
r
4
Y
ea
r
5
$'000 $'00
0
$'000 $'000 $'
00
$'
00

FINANCE 16
0 0
Cash inflows
Sales
revenue 4.16 4.33 4.50
4.
68
4.
87
Saving in
Variable
Cost 3.30 3.40 3.60
3.
71
3.
83
Less:
Out
Sourcing
cost 50.00
Selling,
Administr
ative and
General
Expenses 1.00 1.00 1.00
1.
00
1.
00
NPBT -50.00 6.46 6.73 7.10
7.
39
7.
70
Less: Tax @ 25% 1.62 1.68 1.78 1. 1.

FINANCE 17
85 92
NPAT 4.85 5.05 5.33
5.
55
5.
77
8% discount rate 1.00 0.93 0.86 0.79
0.
74
0.
68
Present value -50.00 4.49 4.33 4.23
4.
08
3.
93
NPV
-
28
.9
5
Calculation of net present value worst case
0 1 2 3 4 5
Year
0
Year
1
Year
2
Year
3
Y
ea
r
Y
ea
r

FINANCE 18
4 5
$'000
$'00
0 $'000 $'000
$'
00
0
$'
00
0
Cash inflows
Sales
revenue 4.16 4.33 4.50
4.
68
4.
87
Saving in
Variable
Cost 3.30 3.40 3.60
3.
71
3.
83
Total cash
inflow in
worst case 7.46 7.73 8.10
8.
39
8.
70
Total cash
inflow in
worst case 6.71 6.96 7.29
7.
55
7.
83
Less: Out
Sourcing
50.00

FINANCE 19
cost
Selling,
Administr
ative and
General
Expenses 1.00 1.00 1.00
1.
00
1.
00
NPBT -50.00 5.71 6.73 7.10
7.
39
7.
70
Less: Tax @ 25% 1.43 1.68 1.78
1.
85
1.
92
NPAT 4.29 5.05 5.33
5.
55
5.
77
8% discount rate 1.00 0.93 0.86 0.79
0.
74
0.
68
Present value -50.00 3.97 4.33 4.23
4.
08
3.
93

FINANCE 20
NPV
-
29
.4
7
Calculation of net present value Best Case
0 1 2 3 4 5
Year
0
Year
1
Year
2
Year
3
Y
ea
r
4
Y
ea
r
5
$'000
$'00
0 $'000 $'000
$'
00
0
$'
00
0
Cash inflows
Sales
revenue 4.16 4.33 4.50
4.
68
4.
87

FINANCE 21
Saving in
Variable
Cost 3.30 3.40 3.60
3.
71
3.
83
Total cash
inflow in
best case 7.46 7.73 8.10
8.
39
8.
70
Total cash
inflow in
best case 8.21 8.50 8.91
9.
23
9.
56
Less:
Out
Sourcing
cost 50.00
Selling,
Administr
ative and
General
Expenses 1.00 1.00 1.00
1.
00
1.
00

FINANCE 22
NPBT -50.00 7.21 6.73 7.10
7.
39
7.
70
Less: Tax @ 25% 1.80 1.68 1.78
1.
85
1.
92
NPAT 5.40 5.05 5.33
5.
55
5.
77
8% discount rate 1.00 0.93 0.86 0.79
0.
74
0.
68
Present value -50.00 5.00 4.33 4.23
4.
08
3.
93
NPV
-
28
.4
4
Determination of NPV under Scenario Analysis

FINANCE 23
Cases NPV
Assumptio
ns
Best
Case -28.44 0.3
Base
Case -28.95 0.5
Worst
Case -29.47 0.2
Final NPV
It is assumed that the sales will increase by 10%. Such increment has probability of 30%

FINANCE 24
It is assumed that the base sales will have probability of 50%
it is assumed that the sales will be decreased by 10%. Such decrement has probability of 20%
Therefore if such situation occur then the final NPV will be
-
$28.90
15
According to the analysis of this calculation it can be found that the net present value of the
company will be -$28.95, if Company will adopt such Option. It represents that if the company
give license to other company for production of their packaging it will create great loss to the
company. The company can face huge amount of loss from such Option. In such Option the
company will contract with Clean World who will be authorized to produce recycled plastic
using the DuoLever Option. It will help the company to save their amount from huge investment
however; it will increase huge number of loss to the company (Leyman and Vanhoucke, 2016).

FINANCE 25
Uncertainty Condition
While adopting the second Option, the company will face huge level of loss in their business.
Therefore, any change in the sales volume i.e. increase or decrease will not affect the company at
greater level. If the sale of the company increases by 10% then the company will still face loss in
their business.
Recommendations
While comparing Option first and Option second, it can be analyze that both Option is not
favorable for the company. However, such step is taken for environmental protection therefore
the company should adopt first option in their business in which they are required to invest huge
amount on setting up plant and machinery to produce packaging products for them. It will help
the company to protect the environment that will enhance goodwill of the company which will
help in competing the competitors in an effective manner. The second Option is costly one as
comparison to the first Option therefore, it is highly suggested that the company should adopt
Option first in their business due to the reason the net present value of first Option is better than
third Option that will help the company to grow in the market in an effective and efficient
manner (Hopkinson, 2017).
Conclusion
From the above analysis it can be concluded that adopting sustainable business plays a vital role
in the global market. Most of the companies have participated in polluting the environment by
consuming large amount of plastic in their business. It has created one of the biggest issues for
the environment. Therefore, one of the companies Duo Lever has realized such issue and started

FINANCE 26
to adopt sustainable mean in its business to protect the environment. The company has decided
either to produce recyclable packaging by their own or give license to other. While reporting the
net present value of both Options, it can be analyzed that the company should adopt first in their
business to protect the environment in an efficient manner.

FINANCE 27
References
Hayward, M., Caldwell, A., Steen, J., Gow, D. and Liesch, P. (2017) Entrepreneurs’ capital
budgeting orientations and innovation outputs: Evidence from Australian biotechnology
firms. Long Range Planning, 50(2), pp.121-133.
Hopkinson, M. (2017) Net Present value and risk modelling for projects. London: Routledge.
Leyman, P. and Vanhoucke, M. (2016) Payment models and net present value optimization for
resource-constrained project scheduling. Computers & Industrial Engineering, 91, pp.139-153.
Zore, Ž., Čuček, L., Širovnik, D., Pintarič, Z.N. and Kravanja, Z. (2018) Maximizing the
sustainability net present value of renewable energy supply networks. Chemical Engineering
Research and Design, 131, pp.245-265.