PROJECT NPV

Basics

(in thousands of $)
Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Key Assumptions
Unit Sales
Inflation Rate
Real Cost of Capital
Tax Rate

5700
1.5%
9.3%
42.0%

11400
1.8%
9.5%
42.0%

19000
2.1%
9.7%
42.0%

21500
2.5%
9.9%
42.0%

24100
2.8%
10.1%
42.0%

12050
2.8%
10.3%
42.0%

8200
2.8%
10.6%
42.0%

10.9%
10.9%

11.5%
23.7%

12.0%
38.6%

12.6%
56.1%

13.2%
76.6%

13.4%
100.3%

13.7%
127.7%

Discounting
Discount Rate = Cost of Capital
Cumulative Discount Factor

0.0%

Price or Cost / Unit

Sales Revenue / Unit
Variable Cost / Unit
Cash Fixed Costs

$15.30
$15.58
$15.91
$16.30
$16.76
$17.23
$17.71
$9.20
$9.37
$9.57
$9.80
$10.08
$10.36
$10.65
$7,940 $8,084.51 $8,257.52 $8,460.65 $8,697.55 $8,941.08 $9,191.43

Cash Flow Forecasts

Sales Revenue
Variable Costs
Gross Margin

$87,210
$52,440
$34,770

$177,594
$106,789
$70,806

$302,325
$181,790
$120,535

$350,520
$210,770
$139,750

$403,910
$242,874
$161,036

$207,610
$124,837
$82,773

$145,234
$87,330
$57,904

Cash Fixed Costs

Depreciation
Total Fixed Costs

$7,940
$4,557
$12,497

$8,085
$4,557
$12,642

$8,258
$4,557
$12,815

$8,461
$4,557
$13,018

$8,698
$4,557
$13,255

$8,941
$4,557
$13,498

$9,191
$4,557
$13,749

Operating Profit
Taxes
Net Profit

$22,273
$9,355
$12,918

$58,164
$24,429
$33,735

$107,720
$45,242
$62,478

$126,732
$53,227
$73,505

$147,781
$62,068
$85,713

$69,274
$29,095
$40,179

$44,155
$18,545
$25,610

Add Back Depreciation

Operating Cash Flow

$4,557
$17,475

$4,557
$38,292

$4,557
$67,035

$4,557
$78,062

$4,557
$90,270

$4,557
$44,736

$4,557
$30,167

$17,475
$15,752

$38,292
$30,958

$67,035
$48,369

$78,062
$50,021

$90,270
$51,107

$44,736
$22,337

$5,600
$35,767
$15,707

Investment in Plant & Equip

Cash Flows
Present Value of Each Cash Flow
Net Present Value

($37,500)
($37,500)
($37,500)
$196,751

PROJECT NPV

Sensitivity Analysis

(in thousands of $)
Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Key Assumptions
Base Case Unit Sales
Unit Sales Scale Factor
Unit Sales
Inflation Rate
Real Cost of Capital Increment
Real Cost of Capital
Tax Rate

5700
100.0%
5700
1.5%

11400

19000

21500

24100

12050

8200

9.3%
42.0%

11400
1.8%
0.2%
9.5%
42.0%

19000
2.1%
0.4%
9.7%
42.0%

21500
2.5%
0.6%
9.9%
42.0%

24100
2.8%
0.8%
10.1%
42.0%

12050
2.8%
1.0%
10.3%
42.0%

8200
2.8%
1.2%
10.6%
42.0%

10.9%
10.9%

11.5%
23.7%

12.0%
38.6%

12.6%
56.1%

13.2%
76.6%

13.4%
100.3%

13.7%
127.7%

$9.70

$9.88

$10.09

$10.34

$10.63

$10.92

$11.23

Variable Costs / Unit:

Direct Labor
Materials
Selling Expenses
Other
Total Variable Cost / Unit

$5.20
$3.70
$2.30
$0.80
$12.00

$5.29
$3.77
$2.34
$0.81
$12.22

$5.41
$3.85
$2.39
$0.83
$12.48

$5.54
$3.94
$2.45
$0.85
$12.79

$5.70
$4.05
$2.52
$0.88
$13.14

$5.86
$4.17
$2.59
$0.90
$13.51

$6.02
$4.28
$2.66
$0.93
$13.89

Cash Fixed Costs:

Lease Payment
Property Taxes
Administration
Advertising
Other
Total Cash Fixed Costs

$4,100
$730
$680
$1,120
$730
$7,360

$4,175
$743
$692
$1,122
$743
$7,476

$4,264
$759
$707
$1,127
$759
$7,616

$4,369
$778
$725
$1,133
$778
$7,783

$4,491
$800
$745
$1,143
$800
$7,978

$4,617
$822
$766
$1,154
$822
$8,181

$4,746
$845
$787
$1,168
$845
$8,391

Discounting
Discount Rate = Cost of Capital
Cumulative Discount Factor

0.0%

Price or Cost / Unit

Sales Revenue / Unit

Working Capital

No. 12
Finance 305, FALL 2012
HW 19
Page 2

Work Cap / Next Yr Unit Sales

Working Capital

$1.23
$7,011

$1.25
$14,232

$1.27
$24,152

$1.30
$27,915

$1.33
$32,061

$1.37
$16,479

$1.41
$11,528

$1.45
$0

Cash Flow Forecasts

Sales Revenue
Variable Costs
Gross Margin

$55,290 $112,593 $191,670 $222,225 $256,074 $131,622

$92,076
$68,400 $139,290 $237,118 $274,918 $316,792 $162,831 $113,909
($13,110) ($26,697) ($45,448) ($52,693) ($60,719) ($31,209) ($21,833)

Cash Fixed Costs

Depreciation
Total Fixed Costs
Operating Profit
Taxes
Net Profit
Add Back Depreciation
Operating Cash Flow

$7,360
$4,557
$11,917

$7,476
$4,557
$12,033

$7,616
$4,557
$12,173

$7,783
$4,557
$12,340

$7,978
$4,557
$12,535

$8,181
$4,557
$12,738

$8,391
$4,557
$12,948

($25,027)
($10,511)
($14,516)

($38,730)
($16,267)
($22,463)

($57,621)
($24,201)
($33,420)

($65,032)
($27,314)
($37,719)

($73,254)
($30,767)
($42,487)

($43,947)
($18,458)
($25,489)

($34,781)
($14,608)
($20,173)

$4,557
($9,959)

$4,557
($17,906)

$4,557
($28,863)

$4,557
($33,162)

$4,557
($37,930)

$4,557
($20,932)

$4,557
($15,616)

Investment in Working Capital

Investment in Plant & Equip
Investment Cash Flow

$7,011
($37,500)
($30,489)

($7,221)

($9,920)

($3,763)

($4,146)

$15,581

$4,951

($7,221)

($9,920)

($3,763)

($4,146)

$15,581

$4,951

$11,528
$5,600
$17,128

Cash Flows
Present Value of Each Cash Flow
Net Present Value

($30,489)
($30,489)
########

($17,180)
($15,486)

($27,826)
($22,497)

($32,626)
($23,541)

($37,307)
($23,906)

($22,348)
($12,653)

($15,981)
($7,979)

$1,512
$664

Data Table: Sensitivity of the Net Present Value to Unit Sales and Date 0 Real Cost of Capital
Input Values for Unit Sales Scale Factor
Out Formula: Net Present Value
########
80%
90%
100%
110%
120%
9.0% ($118,314) ($127,246) ($136,177) ($145,108) ($154,039)
Input Values for
11.0% ($116,757) ($125,515) ($134,272) ($143,030) ($151,787)
Date 0 Real Cost of Capital
13.0% ($115,255) ($123,845) ($132,435) ($141,026) ($149,616)

No. 12
Finance 305, FALL 2012
HW 19
Page 3

15.0% ($113,805) ($122,234) ($130,662) ($139,091) ($147,520)

17.0% ($112,405) ($120,678) ($128,950) ($137,223) ($145,495)

Sensitivity of Project NPV to Unit Sales and Cost of Capital

$15,000
$10,000

Project NPV

$5,000

9.0%

11.0%

13.0%

15.0%

17.0%
80%

90%

100%

Unit Sales Scale Factor

110%

120%

$10,000 -$15,000
$0

$5,000 -$10,000

($5,000)

$0 -$5,000
($5,000)-$0

Real Cost of Capital

No. 12
Finance 305, FALL 2012
HW 19
Page 4