Worldwide Paper Company Harvard Case Solution & Analysis

Worldwide Paper Company Case Study Analysis

Primarily, the company uses its old calculated WACC of approximately 15%. This pre-calculated WACC was too uncertain with the viewpoint of changing market conditions, thus, new WACC had been calculated. The discounted rate is the expected rate of return that a company should expect from its new project(SC Myers, RA Cohn, 1987).

Net Present Value (NPV)

NPV is the net present value and used to evaluate the effectiveness of the new project. In the below table, expected IRR and NPV had been calculated with the help of the net cash flows generated from the project. The Net present value for the project is $858,000. It means that itwill earn profit with the help of its discounted rate. The NPV for the project is positive, which means that the company’s new project is beneficial and will yield increased profit in future. In addition to this, it could be seen that the expected WACC for the project is 9.61%, while the IRR for the project 11.07%. Thus, lower discount rate is beneficial for the project(Ross, 1995).

Table: 2

Internal Rate of Return (IRR)

IRR is the internal rate of return which company should earn from its new project to justify its effectiveness and analyze the phase of the project. IRR will yield no loss, no profit situation for the project. The IRR for the project is 11.07% (See table 2).

Recommendations

After analyzing all the situation with the help of quantitative and qualitative analysis, it is recommended that the company should pursue this project because its NPV is positive that means that it will yield increased revenues in future. With the help of this new expansion, Blue Ridge Mill could reduce its operational cost along with generating increased revenues. In addition to this, the project will help the organization to minimize the need of outside purchase of shortwood and would be able to introduce its new product line in the open market as shortwood supplier. It will provide a new direct automotive process for wood and allowing a longwood- tree length longs. Furthermore,Blue Ridge Mill would become its own supplier and would be able to attract potential customers of shortwood product...................................

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