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Q.

6: Relevant Cash Flows


Year
1. Land
2.Build/Equip
--# of Procedures
--Avg. Revenue/Procedure
3. Revenues
4. Lost Revenues
5. Labor costs (Salary)
6. Utilities
7. Supplies
8. Overhead
9. Depreciation
10. EBT
11. Taxes @40%
12. Net Income
13. Depreciation
14. Salvage Value (Post Tax)
15. Free CF

0
0
10,000,000

10,000,000

$
$
$
$
$
$
$
$
$
$
$
$
$

5,000
1,000
5,000,000
500,000.00
918,000
50,000
1,000,000
36,000
2,000,000
496,000
(198,400)
297,600
2,000,000

$
$
$
$
$
$
$
$
$
$
$
$
$

5,000
1,030
5,150,000
515,000
945,540
51,500
1,030,000
37,080
3,200,000
(629,120)
251,648
(377,472)
3,200,000

$
$
$
$
$
$
$
$
$
$
$
$
$

5,000
1,061
5,304,500
530,450
973,906
53,045
1,060,900
38,192
1,900,000
748,006
(299,203)
448,804
1,900,000

2,297,600

2,822,528

2,348,804

Q.7 Payback Period


Payback Period

4.09

Assumption: Incase of NPV calculation it is to assume that tax payments and tax savings occur at
there is an expected loss of ($ 629120) and we assume that this loss will generate tax saving in the

Q.8 NPV

Free CF
PV of CF

(10,000,000)

2,297,600

2,822,528

2,348,804

(10,000,000)

2,088,727

2,332,668

1,764,691

NPV

Year

590,701

Q.9 IRR

IRR

12.08%

Q.10 Sensitivity Analysis


Change in # of Procedures
-30%
-20%
-10%
0%
10%
20%
30%

Change in Avg. Revenue


-30%
-20%
-10%
0%
10%
20%

# of Procedures
3,500
4,000
4,500
5,000
5,500
6,000
6,500

New NPV
(3,011,639)

(1,810,859)

400000000%

(610,079)

200000000%

590,701

1,791,481

2,992,261

4,193,041

Average Revenue
700
800
900
1,000
1,100
1,200

Change in # of Procedures
600000000%

0%
-30%
-200000000%
-400000000%

New NPV

-20%

-10%

0%

10%

20%

30%

New NPV

Change in Avg. Revenue

(3,011,639)

600000000%

(1,810,859)

400000000%

(690,079)

200000000%

590,701

1,791,481

0%
-30%
-200000000%

2,992,261

-400000000%

-20%

-10%

New NPV

0%

10%

20%

30%

400000000%
200000000%
0%
-30%
-200000000%
-400000000%

30%

1,300 $

4,193,041

140000000%

-20%

-10%

0%

10%

20%

30%

New NPV

Change in Salvage Value

120000000%
100000000%
80000000%
60000000%
40000000%
20000000%
0%
-30%
-20000000%

-20%
-10%
New NPV

0%

10%

20%

30

Change in Salvage Value

Salvage Value

New NPV

Change in Salvage Value

140000000%
120000000%

$
$
$
$
$
$
$

-30%
-20%
-10%
0%
10%
20%
30%

3,500,000
4,000,000
4,500,000
5,000,000
5,500,000
6,000,000
6,500,000

$
$
$
$
$
$
$

31,872
218,148
404,425
590,701
776,978
963,254
1,149,530

100000000%
80000000%
60000000%
40000000%
20000000%
0%
-30%
-20000000%

-20%
-10%
New NPV

0%

Q.11 Scenario Analysis


Case
Worst
Likely
Best

Prob.
0.25
0.50
0.25

# Procedures
3,750
5,000
6,250

Avg. Revenue
800
1,000
1,200

Sal. Value
4,000,000
5,000,000
6,000,000

Worst Case NPV

Year
1. Land
2.Build/Equip
--# of Procedures
--Avg. Revenue/Procedure
3. Revenues
4. Lost Revenues
5. Labor costs (Salary)
6. Utilities
7. Supplies
8. Overhead
9. Depreciation
10. EBT
11. Taxes @40% saving
12. Net Income
13. Depreciation
14. Salvage Value
15. Free CF
PV of CF

0
$0
10,000,000

3,750
800
3,000,000
500,000
918,000
50,000
1,000,000
36,000
2,000,000
(1,504,000)
601,600
(902,400)
2,000,000

3,750
824
3,090,000
515,000
945,540
51,500
1,030,000
37,080
3,200,000
(2,689,120)
1,075,648
(1,613,472)
3,200,000

3,750
849
3,182,700
530,450
973,906
53,045
1,060,900
38,192
1,900,000
(1,373,794)
549,517
(824,276)
1,900,000

(10,000,000)

1,097,600

1,586,528

1,075,724

(10,000,000)

997,818

1,311,180

808,207

10%

20%

30

$
$
$
$
$
$
$
$
$
$
$
$
$

5,000
1,093
5,463,635
546,364
1,003,123
54,636
1,092,727
39,338
1,200,000
1,527,447
(610,979)
916,468
1,200,000

2,116,468

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

5,000
1,126
5,627,544
562,754
1,033,217
56,275
1,125,509
40,518
1,100,000
1,709,270
(683,708)
1,025,562
1,100,000
2,640,000
4,765,562

hat tax payments and tax savings occur at the same period . Hence In year #2
that this loss will generate tax saving in the same year.

2,116,468

4,765,562

1,445,576

2,959,039

in # of Procedures

-10%

0%

10%

20%

30%

e in Avg. Revenue

10%

0%

10%

20%

30%

10%

0%

10%

20%

30%

e in Salvage Value

10%
V

0%

10%

20%

30%

e in Salvage Value

10%
V

0%

10%

20%

30%

NPV
-1,462,913
295,351
1,741,789

3,750
874
3,278,181
546,364
1,003,123
54,636
1,092,727
39,338
1,200,000
(658,007)
263,203
(394,804)
1,200,000
805,196

3,750
900
3,376,526
562,754
1,033,217
56,275
1,125,509
40,518
1,100,000
(541,748)
216,699
(325,049)
1,100,000
2,040,000
774,951

549,959

481,184

CASH FLOW RELATED TO PROJECT


Particulars
1 Capex
Land
New Building & Equipments
$
Salvage Value (after tax cashflow)
Life of Asset
Depreciation rate (MACRS)
2 Revenues
Expected unit sales
Price Increse
Price per unit
Total sales revenue

Now Year 0
0
10,000,000

6 Relevant workings

8 POST TAX SALVAGE VALUE


Salvage Value of end of yr 5
less: Remaing Book value at end of yr 5
Net Salvage Value
Less: Tax @ 40%
After tax Salvage Value
9 Payback Period ( in years)

$
$
$
$
$

10,000,000

20.0%

32.0%

5000
$
$

1,000
5,000,000

$
$

$
$
$
$
$
$
$

918,000
50,000
36,000
500,000
1,000,000
2,000,000
4,504,000

$
$
$
$
$
$
$

3.0%
945,540
51,500
37,080
515,000
1,030,000
3,200,000
5,779,120

496,000
40.00%
(198,400)
297,600
2,000,000
2,297,600

$
$
$
$

$
$
$
$

Year 1

(629,120)
40.00%
251,648
(377,472)
3,200,000
2,822,528

Year 2

500,000
250,000
150,000

$
$

$
$
$

5000
3.0%
1,030
5,150,000

Total Amount

a. Sunk cost
Market Research & feasibility study $
b. Irrevant Costs
I. Allocated admin overhead cost
$
II. Land purchased 5 year back
$
7 Free Cash Flow
Operational Cash inflow
Add : Post tax salvage value
Total Operational Cash Flow
Less :
Change in Working Capital
Capital Expenditures per annum
Inflow & Outflow related to Debts
Free Cash Flow
PV Factor @ 10% 5yrs
Discounted Free Cashflow

End of Year 2

5 years

3 Operating expenses
Increse in Operating costs
Salary
Utility bills
Overhead
Opportunity Cost (Loss of Revenue)
Disposable Medical Supplies
Depreciation expenses
Total Operating Expenses
Operating Profit
Pre tax operating Profit (EBIT)
Income Tax Rate
Income tax effect
4 After tax operating profit( EBT)
Add: Depreciation
5 Net Cash flow from operations

End of Year 1

(10,000,000) $
1
(10,000,000) $

5,000,000
600,000
4,400,000
1,760,000
2,640,000

50,000
-

2,297,600
2,297,600
$0
$0
$0
2,297,600
0.9090909091
2,088,727

###
###

$
$

$
$

2,822,528
###
2,822,528
$0
$0
$0
2,822,528
0.826446281
2,332,668

Year

Total
10 NPV
Discounted Outflow
Discounted Cash Inflow
$
PV Factor @
NPV [ Discounted Inflow - Discounted O $

Outflow
0 $
(10,000,000)
1
2
3
4
5
$
(10,000,000)

$10,000,000
10,590,701
10.0%
590,701

11 IRR

2,088,727

-30%
-20%
-10%
0%
10%
20%
30%

NPV
$
$
$
$
$
$
$

(3,011,639)
(1,810,859)
(610,079)
590,701
1,791,481
2,992,261
4,193,041

-30%
-20%
-10%
0%
10%
20%
30%

NPV
$
$
$
$
$
$
$

(3,011,639)
(1,810,859)
(690,079)
590,701
1,791,481
2,992,261
4,193,041

12.08%

12 Sensetivity Analysis
a. No of Procedures

% Change
3,500
4,000
4500

5,000
5,500
6,000
6,500
b. Change In Average Revenue

% Change

700
800
900

1000
1100
1200
1300
c.

Change in Salvage Value


% Change

$
$
$
$
$
$
$

3,500,000
4,000,000
4,500,000
5,000,000
5,500,000
6,000,000
6,500,000

NPV

-30%
-20%
-10%
0%
10%
20%
30%

$
$
$
$
$
$
$

31,872
218,148
404,425
590,701
776,978
963,254
1,149,530

Inflows p.a
$
$
$
$
$
$

2,297,600
2,822,528
2,348,804
2,116,468
4,765,562
14,350,962

2,332,668

End of Year 3

End of Year 4

19.0%

End of Year 5

$
$

2,640,000

12.0%

11.0%

$
$

5000
3.0%
1,061 $
5,304,500 $

5000
3.0%
1,093 $
5,463,635 $

5000
3.0%
1,126
5,627,544

$
$
$
$
$
$
$

3.0%
973,906
53,045
38,192
530,450
1,060,900
1,900,000
4,556,494

3.0%
1,003,123
54,636
39,338
546,364
1,092,727
1,200,000
3,936,188

3.0%
1,033,217
56,275
40,518
562,754
1,125,509
1,100,000
3,918,274

$
$
$
$
$

748,006
40.00%
(299,203)
448,804
1,900,000
2,348,804

$
$
$
$
$
$
$

$
$
$
$
$

Year 3

$
$

$
$
$

$
$

$
$
$
$
$

Year 4

50,000
-

2,348,804
2,348,804
$0
$0
$0
2,348,804
0.7513148009
1,764,691

1,527,447
40.00%
(610,979)
916,468
1,200,000
2,116,468

$
$
$
$
$
$
$

$
$

$
$

1,709,270
40.00%
(683,708)
1,025,562
1,100,000
4,765,562

Year 5

### $
### $

2,116,468
###
2,116,468
$0
$0
$0
2,116,468
0.6830134554
1,445,576

$
$
$

$
$

End of Year 6

50,000
-

2,125,562
2,640,000
4,765,562
$0
$0
$0
4,765,562
0.6209213231
2,959,039

6.0%

Cumulative Inflows
$
$
$
$
$

2,297,600
5,120,128
7,468,932
9,585,400
14,350,962 Payback Period =
(in Years)

1,764,691

1,445,576

4.09

2,959,039