WORLDWIDE PAPER

COMPANY
Group D - Academic Year 2/2021
TEAM
1. Mr. Paphonsan Jirawanphan 6350024

2. Miss Thanunya Swakpibool 6350108

3. Mr. Vinithi Thongkampala 6350116

4. Miss Kanoknad Kalaphakdee 6350214

 OVERVIE
W
Worldwide paper company

SUGGEST QUESTION –
1
What yearly cash flows are relevant for this investment decision?

SUGGEST QUESTION
– (WPC)
What discount rate should Worldwide Paper Company 2 use to analyze those cash flows?

SUGGEST QUESTION
What is the net present value (NPV) and internal rate–of return
3 (IRR) for the investment?

LIST OF CONTENT
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COMPANY
OVERVIEW
ABOUT WPC

Worldwide Paper Company(WPC) established in the year

1976. WPC are one of the leading supplier, manufacturer, and
importer of digital media (Paper & Board). Now WPC have
more than 3000 customer chains all over India. With head office
in Chennai, Tamil Nadu and Branches in Bangalore (Karnataka)
and Vijayawada (Andra Pradesh).
WPC deal in all types of digital media (Paper & Board)
Used in Colour Laser Printer/Press. Our Paper is suitable for all
laser machines like Xerox, Canon, HP, Konica Minolta, Brother,
and More.

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 CASE OVERVIEW

INVESTMENT PLAN

Invest - $16 million in 2016

and $2 million in 2017
Saving - $2.0 million for
2017 and $3.5 million per
year thereafter
Expected revenues - $10
million in 2018 and continue
at the $10 million level
In January 2016, Bob Prescott, the controller for the Blue Ridge through 2022
Mill, was considering the addition of a new on- site longwood woodyard.
The addition would have two primary benefits: to eliminate the need to
purchase shortwood from an outside supplier and create the opportunity
to sell shortwood on the open market as a new market for Worldwide
Paper Company (WPC). The proposed woodyard utilized new technology
that allowed tree-length logs, called longwood, to be processed directly,
whereas the current process required shortwood, which had to be
purchased from the Shenandoah Mill. 6
 SWOT ANALYSIS

STRENGTHS WEAKNESSES OPPORTUNITIES THREATS

-High Market Value of -Using outdated hurdle If Invest in Longwood -Competition

Stock rate and WACC woodyard, Company from Shenandoah Mill
-High Retained Earning -Unexperienced in will... -Inflation will affect the
shortwood market -Reduce operating costs analysis
-Good Credit Rating at
A level and Increase revenue

-Low debt cost -Entering shortwood

market
-Eliminate need to use
supplier

20XX Pitch Deck 7

 WHAT YEARLY CASH FLOWS ARE RELEVANT
FOR THIS INVESTMENT DECISION?

Projected Cashflow
Year 2016 Year 2017 Year 2018 Year 2019 Year 2020 Year 2021 Year 2022

Sales 4 10 10 10 10 10
Cost -1 -4 -4 -4 -4 -4
SG&A -0.2 -0.5 -0.5 -0.5 -0.5 -0.5
Depreciation -3 -3 -3 -3 -3 -3
EBIT 1.8 6 6 6 6 6
Tax -0.72 -2.4 -2.4 -2.4 -2.4 -2.4
NOPAT 1.08 3.6 3.6 3.6 3.6 3.6
Depreciation 3 3 3 3 3 3
Net Op. Cashflow 4.08 6.6 6.6 6.6 6.6 6.6

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 WHAT YEARLY CASH FLOWS ARE
RELEVANT FOR THIS INVESTMENT
DECISION?

Year 2016 Year 2017 Year 2018 Year 2019 Year 2020 Year 2021 Year 2022

Initial Cost -16 -2 0 0 0 0 0

Operation Cashflow 0 4.08 6.6 6.6 6.6 6.6 6.6
NOWC CF -0.4 -0.6 0 0 0 0 1
Salvage CF 0 0 0 0 0 0 2.28
Net CF -16.4 1.48 6.6 6.6 6.6 6.6 9.88

Salvage Cashflow at 2022

Book value of asset after 5 years 3
Expect Salvage Value 1.8
Accounting Before Tax Loss -1.2
Tax 40% -0.48
Net Profit from Salvage Sales -0.72
Salvage Cashflow 2.28
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 WHAT DISCOUNT RATE SHOULD WORLDWIDE
PAPER COMPANY (WPC) USE TO ANALYZE THOSE
CASH FLOWS?

Weighted Average Cost of Capital

Total Debt 3,000

Cost of Debt 3.57% Cost of Equity (CAPM) 8.64%

LIBOR + 1%
Bank Loan Payable (1.15%+1%) 500 Risk Free Rate from 10Y Government Bond 2.04%

10Y Bond A Rating

Long-Term Debt (3.85%) 2,500 RiskRisk
Market FreePremium
Rate from 10Y
(Historical) 6.00%
Government Bond 2.04%

Total Debt 3,000 Beta 1.10

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 WHAT DISCOUNT RATE SHOULD WORLDWIDE
PAPER COMPANY (WPC) USE TO ANALYZE THOSE
CASH FLOWS?

Weighted Average Cost of Capital 7.34%

Wd 0.20 Market Value of Debt 3,000

Cost of Debt 3.57% Market Value of Equity 12,000

Cost of Debt after Tax(40%) 2.14% Number of Share outstanding 500

We 0.80 Recent Market Value per Share 24

Cost of Equity 8.64% Market Value of Equity500

and Debt 15,000
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 WHAT IS THE NET PRESENT VALUE (NPV) AND
INTERNAL RATE OF RETURN (IRR) FOR THE
INVESTMENT?
Year 2016 Year 2017 Year 2018 Year 2019 Year 2020 Year 2021 Year 2022

Net CF -16.40 1.48 6.6 6.6 6.6 6.6 9.88

Discount -16.40 1.37 5.73 5.34 4.97 4.63 6.46

NPV 12.11

IRR 24.66%

FV(+CF) 33.33
Sum of Future Value -
MIRR 12.55% 1.96 7.60 6.60 5.73 4.97 6.46

PB 3.26

DPB 3.78

Weighted Average Cost of Capital 7.34% 10-Year Government 2.04

Bond %
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 SUMMARY

IRR > WACC

Do The Project!! MIRR > WACC

NPV is Positive

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