NPV Analysis for Sydney Harbour Fuel's Diesel Fuel Project Proposal
VerifiedAdded on 2022/09/30
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AI Summary
This project analyzes Sydney Harbour Fuel's (SHF) proposal to shift from petrol and light diesel to heavy diesel fuel sales, driven by market changes and a competitor's failure. To facilitate this, SHF plans to purchase eight new barges at $4 million each. The analysis uses Net Present Value (NPV) of incremental cash flows to evaluate the project's feasibility over a 10-year lifespan. The project includes detailed calculations of initial investment, cash flows from operations, and terminal values, along with sensitivity analyses considering changes in diesel demand, fuel margins, and residual values. The NPV is calculated to be $46.6 million, making the project viable under the base assumptions. However, sensitivity analyses reveal that changes in demand, margins, and residual values can significantly impact the project's profitability, potentially leading to negative NPV. The report concludes by highlighting the importance of considering these uncertainties when making the final investment decision. The project's financial implications are presented in detail, alongside the assumptions and risks associated with the project.
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