ATLANTIDA Case Study Solution
Introduction:
Atlantida is a super chain market, and is considering to make an investment on home delivery services of the orders that it receives through telephones. The estimated life of the project is 5 years. We have calculated the expected financial statements of the project that includes the cash flow statements, income statements and balance sheets for all the five years. Further we have computed the Net Present Value (NPV) and Internal Rate of Rate (IRR) to estimate that whether the investment in this project is beneficial for the company or not.
Calculation:
For the computation of income statement, first of all depreciation cost is computed by straight line method. The rate of depreciation is calculated by dividing the useful life with one and multiplying it by 100 percent. From the rate, depreciation cost per annum is obtained. Further, to develop the income statement, the first thing that is required is the net sales, for each year we have computed the sales by multiplying the given percent to the total sales of the market. Gross profit is computed by subtracting the given cost of goods sold with the net sales. Moreover, for the calculation of operating expenses, all the expenses that are mentioned in the case study are taken into account. Earnings before tax is computed by subtracting the total operating expenses with the gross profit. Tax is applied then to EBT, to get the final net income for the respective year.
To develop the cash flow statements, three different calculations are done. Firstly for the computation of operating activities, secondly for the investing activities, and lastly for the financing activities of the company. From the second year onwards, the computation for beginning cash and ending cash is also computed.
For the computation of balance sheets for all the years, the calculation of net assets, total debt and total equity is done. Total assets include cash, inventory, account receivables and fixed assets. Total debt includes the entry for accounts payables and equity includes the total amount that the company has. Lastly NPV and IRR are computed using the functions in excel.
Analysis:
From the income statements, we can see that in the first year the net income of the company is negative, showing that the company is in loss. The reason behind this is the low sales. But from the second year onwards the net income of the company has turned positive, showing that the company is making profit, the reason behind this is because the sales of the company increased from 10 percent to 30 percent.
ATLANTIDA Harvard Case Solution & Analysis
But to make an investment decision it is important to check the NPV and IRR of the project. Here we can see that this project has a negative NPV and a negative IRR as well. Negative NPV shows that the expenses are greater than the revenues and negative IRR confirms this. On the basis of negative NPV and negative IRR, the company should not invest in this, as it is not profitable for the company.....................
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