031422

Project 4 Questions – Report Template

Instructions: Answer the five questions below, based on the information that you developed in the Excel workbook. Provide support for your reasoning from the readings in Project 4, Step 1, and the discussion in Project 4, Step 3. Be sure to cite any sources used in proper APA (7th ed.) format.

Provide a detailed response below each question. Use 12-point font and double spacing. Maintain the existing margins in this document. Your final Word document, including the questions, should not exceed 5 pages. Include a title page in addition to the five pages. Any tables and graphs you choose to include are excluded from the five-page limit. Name your document as follows: P4_Final_lastname_Report_date.

You must address all five questions and make full use of the information in the Excel workbook.

You are strongly encouraged to exceed the requirements by refining your analysis. Consider other tools and techniques that were discussed in the required and recommended reading for Project 4.

Title Page 

Name 

Course and section number 

Faculty name 

Submission date 

1. Present-value calculations, rather than future-value calculations, are the key to analysis in the field of corporate finance. Why is this the case? Explain the importance for Largo Global Inc. (LGI) of understanding today’s value of projected future revenues and/or costs.

[insert your answer here]

Future-value calculations are based on interest rates over a specified time period. When it comes to making business decisions, data from future value calculations is less dependable. As a result, investors rely heavily on present value calculation, which is the current value of a future cash flow. When investors purchase a piece asset to help increase production, which will even lead to an increased future. The main factor driving the decision-making process for a go or no-go decision will be the present future value of the asset on which the decision is based.

When making business decisions or understanding how business operations work, it is critical for Largo Global Inc to understand the cash outflow and cash inflow of a present value. LGI cash inflow refers to the money brought into the business by its operations, in this case, the standard and deluxe boxes that generate revenue for LGI. Cash outflow represents the liabilities that LGI must pay as a company. Understanding this business topic will assist investors and stakeholders in forecasting LGI’s future revenue. LGI’s product price will be determined by the cost, which can be direct or indirect. It is critical for LGI to understand the significance of cost and how it will influence many decisions.

2. Based on your calculations in Tab 2, Question 8, which offer should LGI accept for the Bowie plant? Explain why. Be sure to include the concepts of risk and potential return as part of your discussion.

[insert your answer here]

LGI should accept offer D. This offer had the highest present value of $120.66 million when compared to the other offers with lower present values. The amount indicated that the investment would generate a higher profit than the other offers. Over the course of its life, the investment will be profitable. LGI will avoid the risk of depreciation because a cash value of $18.09 million will be paid for the first seven years and $53.05 million in year eight. A high present value indicates a high potential rate of return from selling the Bowie property to reduce costs.

3. The proposed sale of the Bowie plant is part of a larger effort to divest the company of underperforming assets. A total of $1.3 billion in assets, with a book value of $750 million, have been identified for potential sale. Assuming that all these sales could all be accomplished in 2022, identify the major impacts on the following:

a. Balance Sheet, especially these accounts:

·
Property, plant, and equipment

·
Accumulated depreciation

·
Net property, plant, and equipment

b. Statement of Cash Flows, especially Long-Term Investing Activities

c. Income Statement, especially Net Income

Explain the potential impacts, both positive and negative, of these changes for LGI.

[insert your answer here]

4. Based on your calculations in Tab 3, Questions 1–4, should LGI proceed with the acquisition of the robotics-based sorting and distribution equipment? Explain your reasoning. How would the acquisition fit into the efforts to turn the company around?

[insert your answer here]

LGI should continue to acquire robotics-based sorting and distribution equipment to help reduce costs that affect company revenue. The greater the present value (PV), net present value (NPV), and internal rate of return (IRR), the higher the cash flow outcomes from year 0 to year 8. LGI will be able to reduce all extra expenses by paying employees who work long hours and, as a result, will use the company’s resources during working hours. The robotic-based sorting and distribution equipment will reduce labor costs, which are a major expense for most production institutions. Reduced labor costs will allow LGI to redirect the income used for

5. In Tab 3, Question 5, did the change in the discount rate make proceeding with the purchase more or less desirable? What do you conclude from this result? Discuss the role of discount rates in LGI’s decision-making process for capital budgeting and new asset acquisition.

[insert your answer here]

When the discount rate was reduced from 5.98% to 5.02%, the purchase became more appealing when compared to the initial net present value. At a reduced discount rate of 5.02%, the net present value of $194.85 million is greater than $189.46 million. This amount purchases Bowie plant is more appealing to investors because they know the potential outcome of the future cash flow over the investment’s life cycle. It is critical for LGI to understand the current value of their future investment, in this case the purchase of robotics sorting and distribution equipment to help reduce company costs. In the case of capital budgeting and the acquisition of new assets, it is critical to assess and know the capital that will be budgeted, and the purchase of a production asset will bring more cash flow into the LGI revenue. The discount rate determines whether or not an investment will be profitable in the future, and it is an important factor that businesses use to make investment decisions.