MGM626-0801 8.P3P Economics for Decision-Making CTU Online Susan Leslie, Facilitator February 8, 2008

Overview Net present value (NPV) Financial appraisal of expansion Calculating NPV of net cash flows Relevance Assumptions Risks Expansion recommendation

Net present value (NPV)

Financial appraisal of expansion

Calculating NPV of net cash flows

Relevance

Assumptions

Risks

Expansion recommendation

Net Present Value Compare value over time Allows risk calculation

Compare value over time

Allows risk calculation

NPV Report Net Present Value (U.S.$) Risky cash flow = 22.82 mil Certainly equivalent cash flow = 21.55 mil Contrast

Net Present Value (U.S.$)

Risky cash flow = 22.82 mil

Certainly equivalent cash flow = 21.55 mil

Contrast

NPV Relevance: Decision-Making Tool Determine future cash flow Go/no-go Contrast with other projects

Determine future cash flow

Go/no-go

Contrast with other projects

Assumptions Certainty Equivalency Factor Sales figures Discount rate

Certainty Equivalency Factor

Sales figures

Discount rate

Risks Trade policy changes Weakening U.S. economy Political direction

Trade policy changes

Weakening U.S. economy

Political direction

Recommendation Positive NPV looks promising for expansion U.S. economic and political risks demand pause and recalculation of risk factors after the election

Positive NPV looks promising for expansion

U.S. economic and political risks demand pause and recalculation of risk factors after the election

References RonPaul2008. (2008). On the issues . Retrieved February 8, 2008 from http://www.ronpaul2008.com/issues/ World Trade Organization. (2008). The Doha Declaration explained . Retrieved February 8, 2008 from http://www.wto.org/english/tratop_e/dda_e/dohaexplained_e.htm

RonPaul2008. (2008). On the issues . Retrieved February 8, 2008 from http://www.ronpaul2008.com/issues/

World Trade Organization. (2008). The Doha Declaration explained . Retrieved February 8, 2008 from http://www.wto.org/english/tratop_e/dda_e/dohaexplained_e.htm