Read The Peregrine Case Study And Complete The Req ✓ Solved

Read the Peregrine case study and complete the req

Read the Peregrine case study and complete the following requirements. Quantitative Analysis: Compute and compare the net present value and payback period of each option. Qualitative Analysis: In a 2-3 page report, make a recommendation for French. Be sure to provide a written analysis of the results of your quantitative analysis (do not copy and paste Excel worksheet into your document). Critically analyze both options and support your recommendation with a minimum of 3 academic resources.

Paper For Above Instructions

Executive Summary

This report performs the required quantitative and qualitative analyses to support a recommendation for French based on the Peregrine case study instructions. Because the Unit 7 Student Workbook and Peregrine case PDF with specific cash flows and discount rates were not provided with this request, I demonstrate the quantitative approach, provide worked hypothetical computations for two options (A and B), and deliver a qualitative analysis and recommendation grounded in capital budgeting theory and managerial considerations (Brealey, Myers, & Allen, 2019; Damodaran, 2012).

Quantitative Methodology

Two commonly used capital-budgeting measures are applied: net present value (NPV) and (simple) payback period. NPV measures the present value of incremental cash flows discounted at the project’s cost of capital; positive NPV indicates value creation (Ross, Westerfield, & Jaffe, 2016). Payback measures how quickly invested funds are recovered and is used as a liquidity/robustness indicator (Brigham & Ehrhardt, 2016). The report uses a 10% discount rate for demonstration; replace this with the case-specific discount rate when available.

Assumptions and Hypothetical Cash Flows

To illustrate the computation and comparative interpretation, assume two mutually exclusive options with the following undiscounted cash flows and initial investments:

  • Option A: Initial investment = $500,000; Year 1–5 inflows = $120k, $130k, $150k, $160k, $170k.
  • Option B: Initial investment = $400,000; Year 1–5 inflows = $90k, $110k, $140k, $180k, $200k.
  • Discount rate = 10% (demonstration).

Quantitative Calculations

NPV is computed as the sum of discounted cash inflows less the initial outlay. Calculated present values (PV) of inflows at 10% are:

  • Option A PV inflows ≈ $544,141; NPV_A = $544,141 − $500,000 = $44,141.
  • Option B PV inflows ≈ $525,099; NPV_B = $525,099 − $400,000 = $125,099.

Simple payback (undiscounted) is:

  • Option A cumulative inflows reach $400k at end Year 3 and $560k at end Year 4. Payback_A = 3 + (100k/160k) = 3.63 years.
  • Option B cumulative inflows reach $340k at end Year 3 and $520k at end Year 4. Payback_B = 3 + (60k/180k) = 3.33 years.

Summary: Option B has a materially higher NPV ($125k vs. $44k) and a slightly faster payback (3.33 vs. 3.63 years) under the stated assumptions. These computations follow standard capital budgeting procedures (Koller, Goedhart, & Wessels, 2020; Damodaran, 2012).

Interpretation of Quantitative Results

The NPV metric aligns with shareholder value maximization: Option B creates approximately $125k in present-value terms versus $44k for Option A, so Option B is financially superior on NPV grounds (Brealey et al., 2019). The payback results reinforce the liquidity advantage of Option B by indicating a faster recovery of the principal. However, payback ignores time value of money and cash flows beyond the payback horizon (Brigham & Ehrhardt, 2016). Therefore, while both metrics favor Option B in this illustration, decision-makers should prioritize NPV as the primary criterion, consistent with finance literature (Ross et al., 2016).

Qualitative Analysis and Critical Considerations

Beyond the numbers, several qualitative factors must be evaluated before making a final recommendation:

  • Strategic fit: Which option better aligns with French’s long-term strategy, core competencies, and market positioning? Projects with stronger strategic synergies may justify lower short-term NPVs (Porter, 1985).
  • Risk profile: NPV assumes discounting reflects risk. If Option B’s cash flows are more uncertain (higher volatility, greater execution risk), a higher discount rate or scenario analysis could reduce its NPV advantage (Damodaran, 2012).
  • Operational capacity: Implementation complexity, required managerial bandwidth, and supply-chain implications could favor the simpler option even if NPV is lower (Alkaraan & Northcott, 2006).
  • Flexibility and optionality: Projects with staged investments or managerial options (ability to expand, defer, abandon) may yield additional managerial value not captured by static NPV (Trigeorgis, 1996).
  • Non-financial outcomes: Reputation, regulatory compliance, employee morale, or market-entry benefits can be decisive when NPVs are close (Koller et al., 2020).

Given the hypothetical quantitative advantage of Option B and its faster payback, B would be recommended if: (a) its cash flow projections are reliable; (b) operational and strategic fit is acceptable; and (c) downside risk is not materially greater than for A. If Option B carries substantially higher execution or market risk, adjust the discount rate or run sensitivity analyses—NPV rankings can change under different scenarios (Graham & Harvey, 2001).

Recommendation

Based on the demonstrated calculations (NPV_B > NPV_A and payback_B

Implementation Steps for French

  1. Obtain the case-specific cash flows and cost of capital from the Unit 7 workbook and recompute NPVs and (discounted) paybacks in Excel.
  2. Run scenario and sensitivity analyses on key drivers (sales growth, margins, capital costs).
  3. Assess operational readiness and strategic fit; incorporate managerial options into valuation where applicable.
  4. Present results and a staged implementation plan with monitoring triggers to the board.

Conclusion

Using accepted capital-budgeting practice and a demonstration with plausible cash-flow assumptions, Option B is preferable on both NPV and payback criteria. However, the recommendation is conditional on verification of the Peregrine case’s cash flows and risk assumptions. Apply sensitivity analysis and strategic assessment before final commitment to ensure the decision maximizes shareholder value while managing execution risk (Brealey et al., 2019; Ross et al., 2016).

References

  • Alkaraan, F., & Northcott, D. (2006). Strategic capital budgeting and investment appraisal: A role for options in decisions? Accounting, Auditing & Accountability Journal, 19(1), 141–169.
  • Brealey, R. A., Myers, S. C., & Allen, F. (2019). Principles of Corporate Finance (13th ed.). McGraw-Hill Education.
  • Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice (15th ed.). Cengage Learning.
  • Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset (3rd ed.). Wiley.
  • Graham, J. R., & Harvey, C. R. (2001). The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics, 60(2–3), 187–243.
  • Koller, T., Goedhart, M., & Wessels, D. (2020). Valuation: Measuring and Managing the Value of Companies (7th ed.). Wiley.
  • Pike, R., & Neale, B. (2009). Corporate Finance and Investment: Decisions and Strategies (6th ed.). Pearson.
  • Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2016). Corporate Finance (11th ed.). McGraw-Hill Education.
  • Trigeorgis, L. (1996). Real Options: Managerial Flexibility and Strategy in Resource Allocation. MIT Press.

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