英文翻译WorldwidePaperCompany

Worldwide Paper Company案例分析：国际纸业公司 (WPC)Blue Ridge Mill is the subordinate factory of Worldwide Paper Company. In December 2006, Bob Prescott, the controller for the Blue Ridge Mill, was consideringthe addition of a new on-site Longwood wood yard. The addition would have two primarybenefits: to eliminate the need to purchase short wood from an outside supplier and create theopportunity to sell short wood on the open market as a new market forWorldwide PaperCompany.Now the new wood yard would allow the Blue Ridge Mill not only to reduceits operating costs but also to increase its revenue. The proposed wood yard utilized newtechnology that allowed tree length logs, called long wood, to be processed directly, whereas thecurrent process required short wood, which had to be purchased from another mill.Thisnearby mill, owned by a competitor, had excess capacity that allowed it to produce more shortwood than it needed for its own pulp production. The excess was sold to several different mills,including the Blue Ridge Mill. Thus adding the new long wood equipment would mean that Prescott would no longer need to use the Shenandoah Mill as a short wood supplier and that theBlue Ridge Mill would instead compete with the Shenandoah Mill by selling on the short woodmarket.The question for Prescott was whether these expected benefits were enough to justifythe $18 million capital outlay plus the incremental investments in working capital over the sixyear life of the investment.Construction would start within a few months, and the investment outlay would be spentover two calendar years: $16 million in 2007 and the remaining $2 million in 2008. When thenew wood yard began operating in 2008, it would significantly reduce the operating costs of themill. These operating saving would come mostly from the differencethe cost of producingshort wood on-site versus buying it on the open market and were estimated to be $2.0 million for2008 and $3.5 million per year thereafter.Prescott also planned on taking advantage of the excess production capacity afforded bythe new facility by selling short wood on the open market as soon as possible. For 2008, heexpected to show revenues of approximately $4 million, as the facility came on line and began tobread into the new market. He expected short wood sales to reach $10 million in 2009 andcontinue as the $10 million level through 2013. Prescott estimated that the cost of goods sold(before including depreciation expenses) would be 75% of revenues, and SG&Awould be 5% ofrevenues.In addition to the capital outlay of $18 million, the increased revenue would necessitatehigher levels of inventories and accounts receivable. The total working capital would average10% of annual revenues. Therefore the amount of working capital investment each year wouldequal 10% of incremental sales of the year. At the end of the life of the equipment, in 2013, allthe net working capital on the books would be recoverable at cost, whereas only 10% or $1.8million (before taxes) of the capital investment would be recoverable.Taxes would be paid at 40% rate, and depreciation was calculated on a straight-line basisover the six-year life, with zero salvage. WPC accountants had told Prescott that depreciationcharges could not begin until 2008, when all the $1.8 million had been spent, and the machinerywas inservice.Prescott was conflicted about how to treat inflation in his analysis. He was reasonablyconfident that his estimate of revenueand costs for 2008 and 2009 reflected the dollar amountsthat WPC would most likelyexperience during those years. The capital outlays were mostlycontracted costs and therefore were highly reliable estimates.WPC had a company policy to use 15% as the hurdle is for such investmentopportunities. the hurdle rate was based on a study of the comp any’s cost of capital conducted10 years ago, Prescott was uneasy using as outdated figure for a discount rate, particularlybecause it was computed when30-year Treasury bonds were yielding 10%, whereas currentlythey were yielding less than 5% (Exhibit 1).Exhibit 1：Blue Ridge MillCost-of-Capital InformationInterest Rates: December 2006Bank loan rates (LIBOR) Market risk premium1-year 5.38% Historicalaverage 6% Government bonds corporate bonds (10-yearmaturities)1-year 4.96% Aaa 5.37%5-year 4.57% Aa 5.53%10-year 4.60% A 5.78%30-year 4.73% Baa 6.35% Worldwide Paper Financial DataBalance-sheet accounts ($ millions)Bank loan payable (LIBOR +1%) 500Long-term debt 2500Common equity 500Retained earnings 2000Per-share dataShares outstanding (millions) 500Book value per share $ 5.00Recent market value per share $ 24.00OtherBond rating ABeta 1.10rate of income tax 40%Questions1. Please identify the relevant cash flow for the firm (WPC) to be able to make the investmentdecision. Please also include the initial outlay (investment) (for 2007). Itemize the cash flowsfor each of the six years (2008 through 2013) of the investment in detail.2. Calculate WPC’s WACC to be used to analyze the cash f lows and make clear all of yourassumptions and reasons to choose the number that you did in calculating WACC.3. Calculate the NPV, IRR for the investment.2.Cost of Equity: RE=KRF+(KM-KRF)*BetaBeta=1.1, KRF=4.6% (Government bonds 10-year)Risk premium = 6.0%RE = 4.6% + (6.0%)*1.1= 11.2%Cost of Debt:RD = Bank Loan Payable + Long Term Debt= $ 500 + $ 2500= $ 3000RD = (500/3000) * (5.38% + 1%) + (2500/3000) * (5.78%)= 5.88%RD *(1-Tax)=5.88% (1-40%) = 3.528%Equity = Current Market Share Price x Shares Outstanding=$ 24 x 500m= $ 12000mDebt = Bank Loan Payable + Long Term Debt= 500m + 2500m= $ 3000mE+D = $ 12000 + $ 3000= $ 15000E/V= 12000/15000=80%D/V= 3000/15000= 20%WACC=(E/V）×Re+（D/V）×Rd×(1-Tc)=80%*11.2% + 0.2* 3.528%=9.7%1.3. IRR= 11%NPV(9.7%) = 0.83 million (result from excel formula )。