Assignment-1 Case Solution
QUESTION-1 (VALUATION OF NPV)
After conducting the NPV valuation analysis of the product, using discounted cash flow valuation methodology. It can be evaluated that, the NPV of the project is significantly above the NPV estimated, by other Analyst at 2 million, as illustrated in the exhibit below. The NPV was calculated, by determining the contribution margin of the project and subtracting the overhead costs.To estimate the annual cash flows of the project generated over the four year period. Additionally, the cash flows estimated were discounted at 12%, to estimate the present value of the cash flows. Which would enable us to determine, the net present value of the project at $34,984,587, which is significantly higher, than the NPV estimated by the other analyst. Therefore, the project should be accepted, as it could provide the company benefit in the future and the claim that, the NPV would be above 2.5 million is correct.
|Initial Investment||$ (1,850,000)|
|Sales Revenues||$ 23,100,000||$ 26,565,000||$ 30,549,750||$ 35,132,213|
|Cost of Production||$(13,020,000)||$(4,973,000)||$(17,218,950)||$(19,801,793)|
|Contribution margin||$10,080,000||$ 11,592,000||$13,330,800||$15,330,420|
|Overhead cost||$(210,000)||$ (210,000)||$(210,000)||$(210,000)|
|Cash flows||$9,870,000||$ 11,382,000||$ 13,120,800||$15,120,420|
|Discount factor @12%||1.0000||0.8929||0.7972||0.7118||0.6355|
|Present Value||$(1,850,000)||$ 8,812,500||$ 9,073,661||$ 9,339,126||$ 9,609,300|
QUESTION-2 (Monte-Carlo Simulation)
According to the Monte-Carlo Simulation conducted for both upper and lower cases, to calculate the NPV of the project. It can be determined that, under both cases the NPV generated is significantly higher, than the Benchmark set at $1 million, by the senior management of the company. In which, if the NPV meet the Benchmark, the project would not be accepted or continued. However, it was evaluated that, under both condition the NPV of the project would be positive and higher than the Benchmark set.
Furthermore, it can be determined from the Monte Carlo Simulation that, the probability of the project NPV being lessor than $1 million was significantly zero. Which meant that, the project would indefinitely generate NPV, significantly higher than $1 million. Therefore, it can be evaluated that, the project should be accepted by the senior management, as it could potentially provide extensive benefit to the company in the future.
On further Analysis of the Base case, it can be determined that, under both upper and lower cases the NPV of the project would be significantly higher, than the benchmark set by the senior management of the company. However, it can be evaluated that, the NPV generated under both upper and lower case is positive and significantly higher, than the bench mark set by the senior management of the company.
Furthermore, it can be determined from the Monte Carlo Simulation that, the probability of the project NPV being higher than $1 million was significantly higher, than the probability benchmark at 80%. Therefore, it can be evaluated that, the project should be accepted by the senior management, as it could potentially provide extensive benefit to the company in the future.
Wal-Mart is the company selected, to analyze the use of business intelligence in its business strategy. To provide long-term sustainability and future benefit for the organization.
Discuss in detail what tools and techniques are used by the company to support its business operations. Provide examples on how those tools and techniques are used in the company.
Various tools are present for any organization, to enhance their business operations, by incorporating business intelligence in its business strategies. The business intelligence tools are Spreadsheets, data mining, data warehousing and information systems. The data warehousing activity stores raw data in servers, attained from various sources.The data mining activity convert already stored raw data into relevant information. Which could be used to guide the management in making effective business decisions. Furthermore, information system are used, to bring ease for the management of the organization and incorporating it into its business strategies.
However, it can be determined that, Wal-Mart uses Data warehousing technique to store tremendous amount of data on servers, where most of the data relates to the customers. For which, the management of the organization uses data mining activity, to convert this raw data regarding the customers and convert it into relevant information, such as estimating the customers buying patterns based on seasonal variation. Which in turn, would enable the management of Walmart to forecast future demand and make necessary precaution, to meet or fulfill their customers demand with seasonal variation. Moreover, Walmart uses efficient and effective information systems, to manage its stock inventory in real time, using inventory management system. Which would have enabled its staff on the ground to identify, the levels of inventory available or out of stock. To prompt the senior management on a timely basis to avoid stock-outs, which could decrease the customer satisfaction levels and increase the risk of losing customers to competitors..............................................
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