Introduction:
Cranfield Inc. is a leading producer of juices for range of cranberry cocktails. After a market research experiment Cranfield Inc. has many different business decisions to make. One to introduce a new line called lite cocktail which requires space and machinery and will eat into sales of currently offered products. Or not to introduce the new product and lease out it’s space, or do nothing to save the space until it’s needed for its current product line.
1) Incremental cash flows are the cash flows that should be used in calculating the NPV of a project. The cash flows are changes in cash flows that occur as a direct consequence of accepting a project, not the cash flows that the company is already receiving.
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However factors like straight-line depreciation may not be affecting from inflation for the initial cost of a project. However, inflation dose affect the elements of a cash flow stream, but they may not affect all the streams at the same rates.
9) See Table 2: NPV = 196,000.46 IRR = 27.35 MIRR = 19.92 Payback = 2.27 accept project
10) A) See Table 3: NPV = 96,589.76$ accept project
B) See Table 4: NPV = -35,957.84 reject project
11) A) By using solver on table 5, and setting the NPV to 0 by adjusting sales we get 1.80$ price per unit to get a financial breakeven of NPV of 0.
B) By using solver, and setting the setting the NPV to 0 by adjusting units produced and sold, the minimum units produced and sold is 373,135 units to get an NPV of 0.
12 & Conclusion)
According to the NPV rule, the project should be accepted because its NPV is positive (NPV=42,318.71). Moreover, the IRR (14%) and internal rate of return (12%) of the project is over the company’s required rate of return (10%). If Cranberry Association agrees to rent the space, we need to compare the estimated NPV of two projects and decide which one has a higher NPV and rate of return. NPV tells us whether a particular project is worth investing into and also lets us compare various projects and pick the one that will increase shareholders’ wealth the most. Also, when estimating the future you can never be 100% accurate. So while our analysis does yield a positive NPV management must