Cck to edt Master subtte stye

6/26/12
Worldwide Paper
Company Case
Group D
Pau Weaver
Mohammed
Wa|uddn Mchae
Domnguez
L Myers
Brton Htchns
Venus Rodan
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Outline
v
Case Background
v
Swot Analysis
v
Problem Identification
v
Data analysis
v
Recommendation
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!e Case Background
vIn December 2006,Bob Prescott, the
controer for the Bue Rdge M, was
consderng the addton of a new on-
ste ongwood woodyard
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"ew WOOD#ARD
In$estment
New Woodyard
Utzes a new technoogy that
aows tree-ength ogs, caed
ongwoods to be processed drecty
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Current Practice
Bue Rdge M purchases
shortwood from the Shenandoah
M
The Shenandoah m s owned by
a compettor
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Ad$antages of t!e
In$estment
v
Emnates the need to purchase
shortwood from an outsde supper
(Shenandoah M)
v
Opportunty grow 0to se shortwood
on the open market as a new market
v
Reduces operatng cost and
ncreases revenue
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PRI%AR# B&"&'IS O' "&W
WOOD#ARD
77
"ew
Woodyard
&(cess
Capacity
S!ortwood
for pulp
production
Sell
s!ortwood in
open market
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SWO A"A)#SIS
SR&"*+S
q
Strong Sale support
q
Decreasing Wacc
W&A,"&SS&S
q
Applying outdated WACC
q
Wrong in$estment
decisions in past due to
incorrect WACC
OPPOR-"II&S
q
"ew mac!ine mig!t
decrease t!e operating
cost
q
Independence from t!e
current supplier
q
Increased re$enue from
e(cess capacity
+R&AS
q
Competition from
S!enandoa! mill
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CAS& I"'OR%AIO"
q
The new woodyard woud begn
operatng n 2008
q
Investment ./01 million2outay
woud be spent over two caendar
years:
99
3445 3441
/06 million / 3 million
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CAS& I"'OR%AIO"
q
Operatng savngs :
.Buying s!ortwood2 7 .Cost of producing
s!ortwood2

1010
3441 'uture
/3 million /89: million
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CAS& I"'OR%AIO"
q
Expected revenues ($ mon) by
seng shortwood on open market :
1111
3441 344; 3404 3400 3403 3408
/< /04 /04 /04 /04 /04
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CAS& I"'OR%AIO"
q
Cost of Capta = 5:= of re$enue
q
SG&A = := of re$enue
q
Tax rate = <4=
q
Straig!t>line depreciation ( over the sx
year fe) wth ?ero sal$age vaue
q
Net Workng capta = 04= annual re$enue
q
Deprecaton charges begn after the tota $18
mon outay and machnery starts the
servce
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PROB)&% ID&"I'ICAIO"
1) What w the current WACC
be?
1) Whether the expected benefts
were enough to |ustfy the
$18mon capta outay pus
the ncrementa nvestment n
workng capta over the sx-
year fe of the nvestment?

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')OW C+AR
1414
'inal
Decisio
n
Calculate
WACC
Calculate "P@A
IRRA PIA %IRR
02
32
8
2
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DAA A"A)#SIS> CAS+
')OW
q
Cas! 'low
1515
3445 3441 344; 3404 3400 3403 3408
Termna
vaue
./062 /49<1 /89;4 /<9:4 /<9:4 /<9:4 /<9:4 /3941
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DAA A"A)#SIS> O-DA&D
WACC
q
WACC = 15%
v
WPC !as a company policy to use its corporate
Cost of Capital to analy?e in$estment
opportunities
v
WPC !as not c!anged its WACC in 04 years
q
NPV = ($2.14) (Negatve)
q
@iew Worldwide Paper Company9(ls !ere
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DAA A"A)#SIS>-PDA&D
WACC
q
Current WACC (US department of Treasure)
1717
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PAS 84 #&ARS
1818
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DAA A"A)#SIS>-PDA&D
WACC
02 Current WACC B ;965=
32 "P@ B /4953 million
82 IRR B04911=
<2 PIB 094<:
:2 %IRR B 04986=
1919
Worldwide Paper Company>09(ls(
&CC&) +AS
%A*IC
6/26/12
R&CO%%&"DAIO"
WACC ;965= -pdated
"P@ /4953
million
Positi$e
IRR 04911= *reater
t!an
WACC
%IRR 04986= *reater
t!an
WACC
PI 094<: *reater
t!an 0
2020
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R&CO%%&"DAIO"
q
DecisionD
The expected benefts are enough to
|ustfy the $18mon capta outay
pus the ncrementa nvestment n
workng capta over the sx-year fe of
the nvestment
Invest in the new longwood
Woodyard
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E-&SIO"S
2222
+A",
#O-