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CHINOMATERIALSYSTEMS
CapitalBudgetingDecisionMethods
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The model develops the project's cash flows on the basis of input cost
and savings data, then calculates the above decision criteria. Note
that this model was constructed specifically for this case, and hence
project life and depreciation allowances are fixed. The spreadsheet
sheet NPV-PROF contains a graph of the NPV profiles and the sheet
MULTIPLE contains a graph of the multiple IRR project.
If you are using the student version of the model, the model
generating cells have been blanked out.
Before using the model, it is necessary to fill in the empty cells with the
appropriate formulas. Once this is done, the model is ready for use.
INPUTDATA: KEYOUTPUT:
Newsystem:
Delivered cost $285,000 NPV $0
Installation $18,000 IRR 0.00%
Salvage value $15,000 MIRR 0.00%
Annual savings $76,000 Payback 0.00
Tenure 8years PI 0.00
Case requires you to calculate NPV, IRR, MIRR, Payback, PI. Also it requires
you to develop the NPV profile, Sensitivity Analysis
Below model shows all the requirement in detail. Also it shows the NPV profile and NPV profile
chart in a separate sheet in this model
Otherdata:
Cost of capital 12.0%
Cost of borrowing 12.0%
Return for typical investments 12.0%
Tax rate 36.0%
========== =============== ========== ========== ========== ============
MODELGENERATEDDATA:
Cashflowsatt=0: Endofprojectcashflows:
Cost of new system $285,000 Salvage value ---->
Installation 18,000 SV tax
--------
Total cost $303,000 Total
--------
Proceeds from old equip $4,000 Depreciationinformation:
Tax on proceeds (1,440)
Removal cost (AT) (1,600) Depreciable basis:
--------
Net cash flow, old $960
--------
Net invest. outlay $302,040
========
Annualcashflows:
Deprn A.T. Cost
Year Tax saving Saving Net CF Cum CF
0 ($302,040) ($302,040)
1 $21,816 $48,640 $70,456 ($231,584)
2 $34,906 $48,640 $83,546 ($148,038)
3 $20,943 $48,640 $69,583 ($78,455)
4 $12,566 $48,640 $61,206 ($17,249)
5 $12,566 $48,640 $61,206 $43,957
6 $6,283 $48,640 $54,923 $98,880
7 $48,640 $48,640 $147,520
8 $48,640 $58,240 $205,760
DataTableforeffectofcostofcapital:
>
Cap Cost NPV IRR MIRR Payback PI
$23,975 14.42% 13.07% 4.28 1.68
8.0% 13.07% 4.28 1.68
9.0% 13.07% 4.28 1.68
10.0% 13.07% 4.28 1.68
11.0% 13.07% 4.28 1.68
12.0% 13.07% 4.28 1.68
13.0% 13.07% 4.28 1.68
14.0% 13.07% 4.28 1.68
15.0% 13.07% 4.28 1.68
16.0% 13.07% 4.28 1.68
17.0% 13.07% 4.28 1.68
18.0% 13.07% 4.28 1.68
DataTableforeffectoftaxrates(numbersfromsenstivityanalysis):
AnalysisoftheMultipleIRRProject:
ctcashflows:
$15,000
(5,400)
-----------
$9,600
information:
$303,000
ermProject: AnalysisofSecondShortTermProject:
Cost ($50,000)
Year 1 CF $200,000
Year 2 CF ($160,000)
NPV $1,020
IRR 10.6%
MIRR 12.3%
NPV of NPV of
short-term short-term
project 1 project 2
$6,250 $1,020
$12,037 ($1,989)
$10,550 ($1,183)
$9,091 ($413)
$7,658 $321
$6,250 $1,020
$4,867 $1,688
$3,509 $2,324
$2,174 $2,930
$862 $3,508
($427) $4,058
($1,695) $4,582
==============
END
FIGURE 1
NPV-PROFILES
$14,000
$12,000
$10,000
NPV
$8,000
$6,000
$4,000
$2,000
$0
1 2 3 4 5 6 7 8 9 10 11
($2,000)
($4,000)
COST OF CAPITAL
12
10
NPV
-
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
Cost of Capital
NP
V
30 31 32 33 34