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NORTH WOOD PLY PRESS CASE STUDY

For discussion, answers/solution and skype classes etc. contact:


Samaresh Chhotray (CA, MBA, Masters in Finance)
Email id: cssrc1974@gmail.com, financetutors1974@gmail.com

Website: financetutors.net
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Questions Included:
Questions
1) Calculate the Dakatas:
i) Payback period;
ii) Average Accounting Rate of Return (AARR);
iii) Net Present Value (NPV)
iiii) Internal Rate of Return (IRR)
v) Profitability index (PI)
2) Rank the plywood presses by the five techniques listed in question 1 above.
3) Jack apparently spends much time and effort trying to obtain accurate cash flow forecasts. Is Jack's
concern about attention to these estimates justifi
ed? Explain.
4) Any capital budgeting decision involves estimating future cash flows. Financial theory suggests that we
want these estimates to be 'unbiased.' That is, we want forecasts that are just as likely to be above as
below the actual cash flow. Thus, given numerous 'unbiased' estimates, on average the cash flow forecasts
will equal the actual cash flows.
a) It does not appear that North's executives generate 'unbiased' forecasts since a post-audit concluded
that 'on average the predicted cash flows were less than the actual cash flows.' Are you surprised by the
result of the post-audit? Explain.
b) Suppose that a firm's estimate is consistently too low, i.e. on average the predicted cash flows are below
the actual cash flows. What difficulties, if any, would this create?
5) What do you like and dislike about Jacks capital budgeting procedures and why?
6) Which, if any, of the two presses would you recommend that Jack buys and why?
7) What suggestions would you give Jack regarding his capital budgeting procedures? Make sure that each
suggestion is appropriately justified.
Assignment Two: How Risk may be incorporated in business investment decision-making Process

(2500-3000 words)