Scribd Logo
Upload

Welcome to Scribd!

  • 52 views

    Decision Tree

    Uploaded by

    Nick Solanki
    This document calculates the net present value (NPV) of three options - moving to a new location, expanding an existing store, or doing nothing - under both strong and weak growth scenarios. It provides the cash flows and discounting calculations for each option over 5 years. The NPV is highest if the company does nothing now under strong growth, followed by expanding the store under strong growth, with moving to a new location the lowest NPV option.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd

    Decision Tree

    Uploaded by

    Nick Solanki
    52 views6 pages
    This document calculates the net present value (NPV) of three options - moving to a new location, expanding an existing store, or doing nothing - under both strong and weak growth scenarios. It provides the cash flows and discounting calculations for each option over 5 years. The NPV is highest if the company does nothing now under strong growth, followed by expanding the store under strong growth, with moving to a new location the lowest NPV option.

    Original Description:

    operation management

    Copyright

    © © All Rights Reserved

    Available Formats

    XLSX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document calculates the net present value (NPV) of three options - moving to a new location, expanding an existing store, or doing nothing - under both strong and weak growth scenarios. It provides the cash flows and discounting calculations for each option over 5 years. The NPV is highest if the company does nothing now under strong growth, followed by expanding the store under strong growth, with moving to a new location the lowest NPV option.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    52 views6 pages

    Decision Tree

    Uploaded by

    Nick Solanki
    This document calculates the net present value (NPV) of three options - moving to a new location, expanding an existing store, or doing nothing - under both strong and weak growth scenarios. It provides the cash flows and discounting calculations for each option over 5 years. The NPV is highest if the company does nothing now under strong growth, followed by expanding the store under strong growth, with moving to a new location the lowest NPV option.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    You are on page 1of 6

    Operation Management

    Example 5.2 - Exhibit 5.5 : Calculating


    NPV

    CASE I : Moving to new location

    Under Strong growth ,

    Discounting Value =
    Year Cash Flow (1+IR)^(-years)

    1 195,000 0.862
    2 195,000 0.743
    3 195,000 0.641
    4 195,000 0.552
    5 195,000 0.476
    Revenue
    Moving Cost
    Net Present value

    Under Weak Growth ,


    1 115,000 0.862
    2 115,000 0.743
    3 115,000 0.641
    4 115,000 0.552
    5 115,000 0.476
    Revenue
    Moving Cost
    Net Present Value

    CASE II : Expand Store

    Under Strong Growth


    1 190,000 0.862
    2 190,000 0.743
    3 190,000 0.641
    4 190,000 0.552
    5 190,000 0.476
    Revenue
    Expanding Cost
    Net Present Value
    Under Weak Growth,
    Similarly, The NPV will be calculated with cash flow value 100,000 =

    Case III : Do Nothing Now

    Under Strong Growth

    (i) Expand next year


    1 170,000 0.862
    2 190,000 0.743
    3 190,000 0.641
    4 190,000 0.552
    5 190,000 0.476
    Revenue
    Expanding Cost(after 1
    year)
    Net Present value

    (ii) Do not Expand next year


    1 170,000 0.862
    2 170,000 0.743
    3 170,000 0.641
    4 170,000 0.552
    5 170,000 0.476
    Revenue
    Expanding Cost
    Net Present Value

    Under Weak growth


    1 105,000 0.862
    2 105,000 0.743
    3 105,000 0.641
    4 105,000 0.552
    5 105,000 0.476
    Revenue
    Other Costs
    Net Present Value

    Strong growth
    0.550
    Move 310,613

    Weak growth
    0.450

    Strong growth
    0.550

    Hackers Computer Store Expand 402,507

    Weak growth
    0.450

    Strong growth
    0.550

    Do nothing 460,857

    Weak growth
    0.450
    Present Value
    Note : Here Interest Rate ,IR = 16%
    168,103
    144,917
    124,928
    107,697
    92,842
    638,487 Net Present Value = Revenue - Moving Cost
    210,000
    428,487

    99,138
    85,464
    73,676
    63,513
    54,753
    376,544
    210,000
    166,544

    163,793
    141,201
    121,725
    104,935
    90,461
    622,116 Net Present Value = Revenue - Expanding Cost
    87,000
    535,116
    ash flow value 100,000 = 240,429.

    146,552
    141,201
    121,725
    104,935
    90,461
    604,874
    87,000*0.862 =
    75,000
    529,874

    146,552
    126,338
    108,912
    93,889
    80,939
    556,630
    0
    556,630

    90,517
    78,032
    67,269
    57,991
    49,992
    343,801
    0
    343,801

    Revenue - Moving
    Cost (NPV) =
    428,487
    Revenue - Moving
    Cost (NPV) =
    166,544

    Revenue - Expansion
    Cost (NPV) =
    535,116

    Revenue - Expansion
    Cost (NPV) =
    240,429

    Expand Revenue - Expansion Cost (NPV) =


    529,874

    Do nothing
    556,630

    Do
    nothing Revenue (NPV) =
    556,630

    Revenue (NPV) =
    343,801

    You might also like