Essay To Reduce Business Risk and Diversify – Risk Management Assignment Help

Assignment Task

To reduce business risk and diversify its operations, Nike is considering an expansion into the fashion apparel business, producing high-priced casual clothing for teenagers and young adults.
• • It has been estimated that it will cost Nike $ 3.0 billion to establish a presence in this business. Of the initial investment of $3 billion, $2.50 billion will be used to purchase land, building, equipment and machineries; and .5 billion is the net working capital requirement at the inception of the project. The initial investment is subject to straight line depreciation over a 10-year period.
• • A major market-testing organization was employed to do a market study. Their initial study, which has already been completed and expensed, cost $ 200 million and has provided with a sense of the magnitude of this market, and Nike’s potential in the market.
• • The total market for casual apparel is estimated to be $ 100 billion currently, growing at 5% a year. Nike is expected to gain a 2% market share in the first year that it enters the market, and to increase its market share by 1% a year until the tenth year. Beyond that point, Nike’s revenues are expected to grow at the same rate as the overall market.

Calculate the NPV for the project.

Calculate IRR for the project.

Discuss why your investment decision is either the same or different when using the IRR compared with the NPV

Calculate the payback and discounted payback period for the project.

Discuss the weaknesses of the payback period method to evaluate the project.