Assess - Hansson Private Limited

1. According to me Gates’ projections is not realistic because the contract which Hansson Private Limited made with the customer is for 3 years only, and at the end of the contract, the customer might not continue with the contract. Also, since the retailer is already HPL’s largest customer, the actual incremental revenue does not carry the benefits of expanding customer base. The three-year only commitment may not be sufficient time for the project to really take off and generate returns. HPL needs to prepare a strategy for the end of three years. HPL also needs to take into account the opportunity cost for pursuing this investment will close off all other investment options. Even if the expected returns did justify the various costs, HPL still would have to consider the limitations and uncertainties of forecasting. I would suggest that HPL needs to tolerate much higher risk than it used to do, the fact which was already acknowledged by the HPL team after taking their project. However, the estimations of the financial statement is mostly based on the historical date of HPL and it is shown in the data that the risk factor associated is lower. In other words, the estimated financial statement is not accurate. But the bottom line is that this project has higher risk factor attached to it.

1. I would take into account the discount rate of 9.45% which would generate a project cash flow total of $281,242,770.

The NPV of the project is therefore (Sum of present values of the project cash flows of $281,242,770 – Initial investment of $50,000,000)

NPV= $231,242,770 which translates to that if Hansson invests $50,000,000 in the project

1. Yes, we recommend that Tucker Hansson proceed with the investment since the NPV is positive. The analysis shows that the project, although unprecedented in both magnitude and riskiness, is likely to provide Hansson large future payout.