Reference no: EM132643077

Question - You and your business partner are planning the next major project for your company. The project is a significant step in the growth of your firm in that the project will generate cash inflows into the firm for many years into the future. However, there will be a large investment of funds required by the firm to launch the project. The planning is in its preliminary stages where the numbers and other data are gross estimates. Despite the "fuzzy numbers", you and your partner still need to decide whether the project will be worth pursuing.

The following is some of the estimated data you have:

You both decided to finance the project using your own funds.

The cost of the equipment will be $80,000 and this cost is incurred prior to any cash is received by the project.

The expected cash inflows are the most variable of the estimates. Your partner is convinced that the firm will receive $14,000 annually for 7 years. You have your doubts. You think it is more reasonable that there will be cash inflows of $14,000 in year 1, then inflows of $16,000 from years 2-4, and then inflows of $17,000 for years 5-7.

You both agree that after 7 years, the equipment will stop working and can be sold for its parts for about $5,000.

You both consider a discount rate of 7% but remain open to other future possibilities.

You trust your partner's instincts and agree to start analyzing the feasibility of the project.

Required -

Perform the two NPV calculations and provide a narrative of how you calculated both computations and why.

Present your calculated answers in schedule format (a table) along with your narrative.

Provide a summary conclusion on whether you should continue to pursue this business opportunity.

Assuming your partner remains unconvinced of your conclusion, present relevant points of your analysis that you believe are compelling and persuasive in supporting your position.