Working computers study
Working Computers should move forward with the $18 million investment. The reason and recommendation to move forward with Bernoulli investment is given because it would be beneficial to the company and produce higher revenues as opposed to not making an investment.
Some aspects against the decision of the investment, Stewart Workman feels the Bernoulli Device is a burden on the company, and it’s not producing enough sales and thereby feels that the company is losing funding. Stewart Workman feels the current funds could go to other investments in the company that would be better or more important Some aspects of getting rid of the Bernoulli ...view middle of the document...
This is what the company goal is looking to improve is the market share, and this investment in the research will do just that. Unit sales, revenues and cost of goods sold will increase vs. if not investing in the research to improve the Bernoulli Device.
The impact of this decision on Stewarts Workman goal to get rid of the Bernoulli project he won’t be able to fully reduce or outsource all of the production of the company. Instead of using this funding for other things that Stewart Workman feels would be more beneficial than Bernoulli, he now would have to look into an investment that he is unsure of.
In summary based on Questions 1 and 2 figures along with question 3, the analysis shows that with the investment would be good for the company.
Using cash flows calculated in the previous questions, we use this data to arrive at a terminal value and a selling price for the Bernoulli division. The calculation of the terminal value is done using the final year’s returns, the weighted average cost of capital, and the growth rate. The 2009 returns are $28,603,200, the WACC is 14.5%, and the growth rate is 7%. These inputs appear as follows: $28,603,200(1.07)/(.145-.07) = $408,072,320, this is the terminal value. This value is included with the present value of cash flows in order to arrive...