Abdullahi Godana Ismail-0722941 corporate finance assignment

machinery
Q (yards) price revenue v.c plant dep dep
1 100,000 30 3000000 1800000 50000 200000
2 100,000 30 3000000 1872000 90000 320000
3 100,000 30 3000000 1946880 72000 192000
4 100,000 30 3000000 2024760 57600 115200
5 100,000 30 3000000 2105750 46100 115200

year 0 year 1 year 2 year 3 year 4 year 5

machinery cost -1,000,000
plant refurbishing -500,000
investment in NWC -300,000

sales revenue 3000000 3000000 3000000 3000000 3000000

less V.C 1800000 1872000 1946880 2024760 2105750
less F.C 300,000 300,000 300000 300000 300000
less plant dep 50000 90000 72000 57600 46100
less machinery dep 200000 320000 192000 115200 115200
EBIT 650,000 418,000 489120 502440 432950
less tax 227500 146300 171192 175854 151532.5
N.I 422,500 271,700 317928 326586 281417.5
add plant dep 50000 90000 72000 57600 46100
add machinery dep 200000 320000 192000 115200 115200
672,500 681,700 581928 499386 442717.5
sale of land 600,000
NWC 300000
Cashflow -1,800,000 672,500 681,700 581928 499386 1,342,718

NPV at @ 12% = $837,361.43

Based on the above calculated NPV, Mr. Jojo should NOT recommend submitting the bid to the navy at
the proposed $30 per yard. He should recommend that the land and plant to be sold at $1.5 million which
is almost double the income compared to making the duffel canvas.

$1,500,000 – $837,361.43 = $662,638.57