Investment company has been approached about investing in an elite junior volleyball club

Full Answer Section

• • By calculating the net present value (NPV) of the projected cash flows, you can determine if the investment is financially viable. A positive NPV indicates that the investment is expected to generate value, while a negative NPV suggests it may not.
  • Additionally, calculating the internal rate of return (IRR) will show the rate of return the project is estimated to achieve. This can be compared to other investment opportunities.
• Relationship to Profit/Loss Forecast:
  • The profit/loss forecast provides the raw data for TVM calculations. It shows the projected revenues, expenses, and profits over the five-year period.
  • However, the forecast alone doesn't account for the timing of those cash flows. TVM calculations adjust for the timing, providing a more accurate picture of the investment's profitability.
  • For example, if the forecast shows large profits in the later years, those profits will be discounted more heavily than profits in the earlier years. This reflects the fact that it's riskier and less valuable to receive money in the distant future.
  • The TVM calculations will help to determine if the initial investment, and the following yearly profits, are worth the risk.

Greatest Benefit of Good Communication Between Project Team and Stakeholders:

The greatest benefit of having good communication between the project team and project stakeholders is mitigating risks and ensuring project alignment. Here's why:

• Risk Mitigation:
  • Open communication allows for the early identification and resolution of potential problems. Stakeholders can provide valuable insights into potential risks and challenges.
  • When stakeholders are informed, they are more likely to support the project and help overcome obstacles.
  • Good communication allows for rapid responses to changes, and therefore lessens the impact of those changes.
• Project Alignment:
  • Clear communication ensures that everyone is on the same page regarding project goals, objectives, and expectations.
  • Stakeholders can provide feedback and input throughout the project lifecycle, ensuring that the project meets their needs.
  • When stakeholders are involved, they are more likely to be satisfied with the project's outcome.
  • When all parties are on the same page, there is less chance of scope creep, or other project derailing issues.
• In short, good communication fosters trust, collaboration, and a shared understanding, which are essential for project success.

Sample Answer

Investment in an Elite Junior Volleyball Club and Time Value of Money:

The time value of money (TVM) is crucial in evaluating the investment in the elite junior volleyball club. Here's how it impacts the decision and relates to the profit/loss forecast:

• Impact on Decision:
  • The five-year profit/loss projection provides a series of future cash flows. However, a dollar today is worth more than a dollar in the future due to factors like inflation and potential investment returns.
  • Therefore, you need to discount those future cash flows back to their present value using an appropriate discount rate. This discount rate should reflect the risk associated with the investment and the opportunity cost of capital.