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Tesco: Evaluating The Cost Of Two Compressors That Will Be Used In The Refrigerator - Case Study Example
The analysis deals with the average demand scenario that indicates the sensitivity of the project and if the project should be accepted based on the risk involved in implementing the project. The paper evaluates the behavior of cash flows for the next 20 years and examines the assumption used to forecast the cash flows…
Meanwhile, the paper evaluates cost of equity that is used to keep a share price that is essential to investors to evaluate the performance of various projects. On the basis of the various evaluation of the project, we recommend the way forward for the Tesco works.
The energy cost situation should be considered of the significant in evaluating the feasibility of the project in the competitive market. The productivity of the projects will depend on the energy cost situation. In case, the energy costs are high the project will be extremely expensive that will have inadequate return. Understanding the cost effectiveness of the energy cost will assist indicate the significant of implementing energy cost in the project plan. The energy efficiency cost efficacy is ascertained by comparing the benefits of investments with the costs. The significant of the energy cost situation will be evaluated using overall cost effectiveness of the energy efficiency. The discount rate used to discount, the NPV of the annual costs and benefits is obtained and evaluated.
Given that the energy cost will occur upfront and the returns occur over time, the lower discount rate will prove the cost effectiveness will be positive. Since this is the business project, the discount rate will be the weighted average cost of the capital that is approximately 12 percent. ...