Insights on Women's Labor Participation in Gulf Cooperation Council Countries Net Present Value (NPV) / MBA Resources

Introduction to Net Present Value (NPV) - What is Net Present Value (NPV) ? How it impacts financial decisions regarding project management?

NPV solution for Insights on Women's Labor Participation in Gulf Cooperation Council Countries case study

At Oak Spring University, we provide corporate level professional Net Present Value (NPV) case study solution. Insights on Women's Labor Participation in Gulf Cooperation Council Countries case study is a Harvard Business School (HBR) case study written by Janet Y. Murray, Yingying Zhang-Zhang. The Insights on Women's Labor Participation in Gulf Cooperation Council Countries (referred as “Women's Participation” from here on) case study provides evaluation & decision scenario in field of Leadership & Managing People. It also touches upon business topics such as - Value proposition, Gender, Innovation, Intellectual property.

The net present value (NPV) of an investment proposal is the present value of the proposal’s net cash flows less the proposal’s initial cash outflow. If a project’s NPV is greater than or equal to zero, the project should be accepted.

NPV = Present Value of Future Cash Flows LESS Project’s Initial Investment

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Case Description of Insights on Women's Labor Participation in Gulf Cooperation Council Countries Case Study

In analyzing the many stereotypes surrounding Arab Middle Eastern women's employment issues, this article focuses on women's labor participation and their career development in Gulf Cooperation Council (GCC) countries. We first unpack the stereotypes by demonstrating the progress of women's labor participation in the region. We then uncover the critical challenges of a high female unemployment rate during GCC countries' economic transformation in the non-oil sectors. We discuss the factors contributing to low women's labor participation and the difficulty of career advancement for women, including (1) norms and traditions; (2) job opportunities and workplace discrimination; and (3) role models, mentors, and networking. Finally, we provide recommendations on how to improve women's labor participation by involving the public and private sectors, deploying technology, and engaging in multilevel mindset change.

Case Authors : Janet Y. Murray, Yingying Zhang-Zhang

Topic : Leadership & Managing People

Related Areas : Gender, Innovation, Intellectual property

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Calculating Net Present Value (NPV) at 6% for Insights on Women's Labor Participation in Gulf Cooperation Council Countries Case Study

Years	Cash Flow	Net Cash Flow	Cumulative     Cash Flow	Discount Rate @ 6 %	Discounted Cash Flows
Year 0	(10028345)	-10028345	-	-
Year 1	3464276	-6564069	3464276	0.9434	3268185
Year 2	3980438	-2583631	7444714	0.89	3542576
Year 3	3939804	1356173	11384518	0.8396	3307935
Year 4	3226100	4582273	14610618	0.7921	2555373
TOTAL			14610618		12674069

The Net Present Value at 6% discount rate is 2645724

In isolation the NPV number doesn't mean much but put in right context then it is one of the best method to evaluate project returns. In this article we will cover -

Different methods of capital budgeting

What is NPV & Formula of NPV,
How it is calculated,
How to use NPV number for project evaluation, and
Scenario Planning given risks and management priorities.

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Capital Budgeting Approaches

Methods of Capital Budgeting

There are four types of capital budgeting techniques that are widely used in the corporate world –

1. Net Present Value
2. Profitability Index
3. Internal Rate of Return
4. Payback Period

Apart from the Payback period method which is an additive method, rest of the methods are based on Discounted Cash Flow technique. Even though cash flow can be calculated based on the nature of the project, for the simplicity of the article we are assuming that all the expected cash flows are realized at the end of the year.

Discounted Cash Flow approaches provide a more objective basis for evaluating and selecting investment projects. They take into consideration both –

1. Timing of the expected cash flows – stockholders of Women's Participation have higher preference for cash returns over 4-5 years rather than 10-15 years given the nature of the volatility in the industry.
2. Magnitude of both incoming and outgoing cash flows – Projects can be capital intensive, time intensive, or both. Women's Participation shareholders have preference for diversified projects investment rather than prospective high income from a single capital intensive project.

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Formula and Steps to Calculate Net Present Value (NPV) of Insights on Women's Labor Participation in Gulf Cooperation Council Countries

NPV = Net Cash In Flowt1 / (1+r)t1 + Net Cash In Flowt2 / (1+r)t2 + … Net Cash In Flowtn / (1+r)tn
Less Net Cash Out Flowt0 / (1+r)t0

Where t = time period, in this case year 1, year 2 and so on.
r = discount rate or return that could be earned using other safe proposition such as fixed deposit or treasury bond rate. Net Cash In Flow – What the firm will get each year.
Net Cash Out Flow – What the firm needs to invest initially in the project.

Step 1 – Understand the nature of the project and calculate cash flow for each year.
Step 2 – Discount those cash flow based on the discount rate.
Step 3 – Add all the discounted cash flow.
Step 4 – Selection of the project

Why Leadership & Managing People Managers need to know Financial Tools such as Net Present Value (NPV)?

In our daily workplace we often come across people and colleagues who are just focused on their core competency and targets they have to deliver. For example marketing managers at Women's Participation often design programs whose objective is to drive brand awareness and customer reach. But how that 30 point increase in brand awareness or 10 point increase in customer touch points will result into shareholders’ value is not specified.

To overcome such scenarios managers at Women's Participation needs to not only know the financial aspect of project management but also needs to have tools to integrate them into part of the project development and monitoring plan.

Calculating Net Present Value (NPV) at 15%

After working through various assumptions we reached a conclusion that risk is far higher than 6%. In a reasonably stable industry with weak competition - 15% discount rate can be a good benchmark.

Years	Cash Flow	Net Cash Flow	Cumulative     Cash Flow	Discount Rate @ 15 %	Discounted Cash Flows
Year 0	(10028345)	-10028345	-	-
Year 1	3464276	-6564069	3464276	0.8696	3012414
Year 2	3980438	-2583631	7444714	0.7561	3009783
Year 3	3939804	1356173	11384518	0.6575	2590485
Year 4	3226100	4582273	14610618	0.5718	1844533
TOTAL					10457215

The Net NPV after 4 years is 428870

(10457215 - 10028345 )

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Calculating Net Present Value (NPV) at 20%

If the risk component is high in the industry then we should go for a higher hurdle rate / discount rate of 20%.

Years	Cash Flow	Net Cash Flow	Cumulative     Cash Flow	Discount Rate @ 20 %	Discounted Cash Flows
Year 0	(10028345)	-10028345	-	-
Year 1	3464276	-6564069	3464276	0.8333	2886897
Year 2	3980438	-2583631	7444714	0.6944	2764193
Year 3	3939804	1356173	11384518	0.5787	2279979
Year 4	3226100	4582273	14610618	0.4823	1555797
TOTAL					9486866

The Net NPV after 4 years is -541479

At 20% discount rate the NPV is negative (9486866 - 10028345 ) so ideally we can't select the project if macro and micro factors don't allow financial managers of Women's Participation to discount cash flow at lower discount rates such as 15%.

Acceptance Criteria of a Project based on NPV

Simplest Approach – If the investment project of Women's Participation has a NPV value higher than Zero then finance managers at Women's Participation can ACCEPT the project, otherwise they can reject the project. This means that project will deliver higher returns over the period of time than any alternate investment strategy.

In theory if the required rate of return or discount rate is chosen correctly by finance managers at Women's Participation, then the stock price of the Women's Participation should change by same amount of the NPV. In real world we know that share price also reflects various other factors that can be related to both macro and micro environment.

In the same vein – accepting the project with zero NPV should result in stagnant share price. Finance managers use discount rates as a measure of risk components in the project execution process.

Sensitivity Analysis

Project selection is often a far more complex decision than just choosing it based on the NPV number. Finance managers at Women's Participation should conduct a sensitivity analysis to better understand not only the inherent risk of the projects but also how those risks can be either factored in or mitigated during the project execution. Sensitivity analysis helps in –

What are the uncertainties surrounding the project Initial Cash Outlay (ICO’s). ICO’s often have several different components such as land, machinery, building, and other equipment.

What are the key aspects of the projects that need to be monitored, refined, and retuned for continuous delivery of projected cash flows.

What will be a multi year spillover effect of various taxation regulations.

Understanding of risks involved in the project.

What can impact the cash flow of the project.

Some of the assumptions while using the Discounted Cash Flow Methods –

Projects are assumed to be Mutually Exclusive – This is seldom the came in modern day giant organizations where projects are often inter-related and rejecting a project solely based on NPV can result in sunk cost from a related project.

Independent projects have independent cash flows – As explained in the marketing project – though the project may look independent but in reality it is not as the brand awareness project can be closely associated with the spending on sales promotions and product specific advertising.

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Negotiation Strategy of Insights on Women's Labor Participation in Gulf Cooperation Council Countries

References & Further Readings

Janet Y. Murray, Yingying Zhang-Zhang (2018), "Insights on Women's Labor Participation in Gulf Cooperation Council Countries Harvard Business Review Case Study. Published by HBR Publications.