Video Reflection 2 [WLOs: 2, 3, 5] [CLOs:1, 2, 3, 4]

BUS401 Week 4 Discussion Forum

  

Working capital investments are subtracted in the cash flows each year due to continued operation expenses. Costs of operations continue throughout the entire period of production.

The required rate of return is the absolute minimum required for a successful endeavor. Returns below this threshold indicate a failed venture. Companies use this threshold to determine if the investment is worthwhile.

The auto company’s normal rate of return is 15%, rather than the 9% for this project. Obviously, a 6% higher return would increase the profitability of the project. At 9%, the electrobicycle is a riskier project.

The company should not invest in this project. With a 9% expected rate of return, the NPV does not exceed the initial investment. Even if the salvage value of the equipment is added to the total return, the return will be below the initial investment. However, if the rate of return of 10% or more will be an appropriate investment.