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Net Present Value Assignment : GPBS

   

Added on  2021-05-31

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EXECUTIVE SUMMARYIntroductionGrey’s Point Business Solutions Pty Ltd (GPBS) is a warehouse business located in Sydney.Currently, the company lies next to a plot of vacant land which remains undeveloped.The purpose of this report is to determine whether GPBS should expand their business, byutilizing the vacant land for another warehouse facility, or whether they should sell the land atits market value. To perform the above analysis, the Net present Value was analyzed andcompared under both scenarios. Data and MethodologyGPBS provided the following data and forecasts in respect to the company. The data was thenused to perform the NPV analysis under the two options. Revenues, wages and maintenance cost for the next 5 years.The cost of the new warehouse, depreciation expense and its salvage value in 5 yearsThe cost of new equipment, depreciation expense and its salvage value in 5 yearsThe cost of old equipment, depreciation expense and its salvage value in 5 yearsThe anticipated value of land in 5 yearsLand maintenance cost for the next 5 years if left undeveloped.The company tax rate of 30% and required return on similar projects.The team also provided other data items but these were considered irrelevant for the cash flowanalysis. These data items include the following:-Jacob’s oversea and travel cost- This cost is considered a sunk cost, hence it is not relevantfor the cash flow analysis.Interest expense- The interest expense is already factored into the company’s requiredreturn. Hence it is not relevant for the cash flow analysis.The training Cost of $35,000 is also irrelevant as it has not impact on the project’s futurecash flows.Based on the relevant data items, assuming a time frame of 5 years, a cash flow analysis wasconstructed and the NPV was determined under both options of selling or expanding.ResultsOption 1: Sell the LandThe cash flow analysis from this option shows an NPV of $117,948 and IRR of 66% should GBPSdecide to sell the vacant land to a willing buyer in 5 years.Option 2: Expand the Business
Net Present Value Assignment : GPBS_1

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