Knights International

New Facility
Days
Tax Rate
Project Length
Investment
Tonnage per Day
Fixed operating cost per year
Fixed operating cost per Ton
Price per Ton
Variable Cost per Ton
Depreciation Life
Depreciation/Year
Depreciation/Ton
Required Return
Sales
Less Fixed Costs
Less Variable Costs
EBT
Tax
Free Cash Flow
Depreciation Add
Net Cash Flow

$
$
$
$
$
$
$

$
$
$
$
$
$

Old Facility Renovation

360
360
40%
40%
20.00
20.00
680,000,000.00 $
170,000,000.00
2200
1600
57,360,000.00 $
21,824,000.00
72.42 $
37.89
500.00 $
500.00
250.00 $
290.00
5
20
136,000,000.00 $
8,500,000.00
171.72 $
14.76
12%
12%
Net Cash Flow Computation
396,000,000.00 $
288,000,000.00
57,360,000.00 $
21,824,000.00
198,000,000.00 $
167,040,000.00
### $
99,136,000.00
56,256,000.00 $
39,654,400.00
84,384,000.00 $
59,481,600.00
136,000,000.00 $
8,500,000.00
### $
67,981,600.00

nal
Old Facility Revised Renovation

$
$
$
$
$
$
$

360
40%
20.00
170,000,000.00
1200
21,824,000.00
50.52
500.00
310.00
20
8,500,000.00
19.68
12%

n
$
$
$
$
$
$
$
$

216,000,000.00
21,824,000.00
133,920,000.00
60,256,000.00
24,102,400.00
36,153,600.00
8,500,000.00
44,653,600.00

$337,784,728.69

$163,537,547.82

Knights International
New Facility
Project Length
Investment
Tonnage per Day
Fixed operating cost per year
Fixed operating cost per Ton
Price per Ton
Variable Cost per Ton
Depreciation Life
Depreciation/Year
Depreciation/Ton
Required Return
Sales
Less Fixed Costs
Less Variable Costs
EBT
Tax
Free Cash Flow
Depreciation Add
Net Cash Flow
Payback Period

$
$
$
$
$
$
$

Old Facility Renovation

15.00
15.00
680,000,000.00 $
170,000,000.00
2200
1600
57,360,000.00 $
21,824,000.00
72.42 $
37.89
500.00 $
500.00
250.00 $
290.00
15
15
45,333,333.33 $
11,333,333.33
57.24 $
19.68
12%
12%

$ 396,000,000.00 $
$
57,360,000.00 $
$ 198,000,000.00 $
### $
$
56,256,000.00 $
$ 84,384,000.00 $
$
45,333,333.33 $
### $
5.24

288,000,000.00
21,824,000.00
167,040,000.00
99,136,000.00
39,654,400.00
59,481,600.00
11,333,333.33
70,814,933.33
2.40

ts International
Old Facility Revised Renovation
$
$
$
$
$
$
$

$
$
$
$
$
$
$
$

Without Renovation

15.00
170,000,000.00
1200
21,824,000.00
50.52
500.00
310.00
15
11,333,333.33
26.23
12%
216,000,000.00
21,824,000.00
133,920,000.00
60,256,000.00
24,102,400.00
36,153,600.00
11,333,333.33
47,486,933.33
3.58

$
$
$

600 Days
Tax Rate
###
380.00
15
-

360
40%

Question 1
New Facility
$966,145,863.70

NPV

Based on the NPV, a new facility is the most benefi

Question 2 (A & B)
New Facility
A
B

IRR
Payback Period

32.29%
3.09

Based on the IRR & Payback period, old facility with renovation is t

Question 3 (A & B)
A

No ! NPV & IRR both give us opposite results. NPV favors new facility whereas the

Projects with slower return usually have higher NPV at lower discount rates and projects
discount rates. Upon manipulation of discount rate we can reach a cross over rate where
cross over rate is larger than the discount rate then NPV and IRR will contradict. Initial

Question 4

Reducing to a 15 year annuity the renovation project's IRR merely drops by 1% however
$44,653,600*5= $223,268,000 but the time value is not considered. This amount reflects
to the life is like giving an advantage/handicap to the ren

NPV
IRR
PayBack Period

New Facility
$203,487,179.27
17.34%
5.24

Question 5

Quantitative Factors: Based on the calculations in previous questions the newe

case, apart from that in all scenarios the renovation project seems the better option bas
positive NPV (although somewhat less than new facility in the 20 year scenario). Recomm

Apart from the quantitative methods there are other factors to be considered. Knights I
comittment which will come under strain if the new facility is opted. New facility can also
and lower productivity as well as it can incur future costs in terms of increased employee
good returns & employee loyalty Recommendation is Reno

Apart from the quantitative methods there are other factors to be considered. Knights I
comittment which will come under strain if the new facility is opted. New facility can also
and lower productivity as well as it can incur future costs in terms of increased employee
good returns & employee loyalty Recommendation is Reno

Question 6
A

We have to calculate incremental IRR, Project A will be New facility & Project B will be renov
flows A-B. Incremental IRR (13.25%) is greater than required rate of 12%, hence for all req
seeing conflicting NPV and IRR results. NPV and IRR will allign once the required rate
A-B, cashflows
Incremental IRR
Required Return

Year 0
$

510,000,000.00
13.26%
12%

For mutually exclusive projects if NPV & IRR give the same result then the project with bet
IRR contradict ( incremental IRR is > Requried return) then NPV is a better parameter to
return and tells the increase in value which is bette

Question 7
Cash Flows
New Facility
Days
Tax Rate
Project Length
Investment
Tonnage per Day
Fixed operating cost per year
Fixed operating cost per Ton
Price per Ton
Variable Cost per Ton
Depreciation Life
Depreciation/Year
Depreciation/Ton
Required Return
Sales
Less Fixed Costs
Less Variable Costs
EBT
Tax
Free Cash Flow
Depreciation Add
Net Cash Flow
NPV

$
$
$
$
$
$
$

$
$
$
$
$
$
$
$

360
40%
20.00
680,000,000.00
2200
57,360,000.00
72.42
500.00
250.00
20
34,000,000.00
42.93
12%
Net Cash Flow Computation
396,000,000.00
57,360,000.00
198,000,000.00
140,640,000.00
56,256,000.00
84,384,000.00
34,000,000.00
118,384,000.00
$204,262,614.02

Question 8 (A&B)

Net cashflow for the first five years when there is depre
New Facility
Net Cash Flow 5 Yr Dep
$
220,384,000.00
Net Cash Flow remaining 15 Years
$
84,384,000.00
Using Financial Calculator to calculate 2 annuities per project (5yr, 15yr) using the same di
NPV
$
440,551,094.30
IRR
25.98%

NPV 20yr Dep

NPV 5yr Dep
NPV Change
%NPV Change

$
$

$204,262,614.02
440,551,094.30
236,288,480.28
53.63%

Question 9
Days
Tax Rate
Project Length
Investment

Manipulate the daily tonnage till we reach a value where NPV ch

New Facility
360
40%
20.00
$
680,000,000.00

Tonnage per Day

Tonnage Annual
Fixed operating cost per year
Fixed operating cost per Ton
Price per Ton
Variable Cost per Ton
Depreciation Life
Depreciation/Year
Depreciation/Ton
Required Return
Sales
Less Fixed Costs
Less Variable Costs
EBT
Tax
Free Cash Flow

1694
609840
$
$
$
$

57,360,000.00
94.06
500.00
250.00
20
$
34,000,000.00
$
55.75
12%
Net Cash Flow Computation
$
304,920,000.00
$
57,360,000.00
$
152,460,000.00
$
95,100,000.00
$
38,040,000.00
$
57,060,000.00

Depreciation Add
Net Cash Flow

NPV

$
$

34,000,000.00
91,060,000.00

$167,536.43

For new facility the minimum tonnage per day that keeps NPV positive is 1694 tons/day re
$167,536. For renovation of old facility the minimum tonnage of 667 tons/day is required
net cash flows of $22,779,280.

Question 10
A

Every project has its own cost and discount rate, so it's probably not good to use

Question 1
Old Facility Renovation
Old Facility Revised Renovation
$337,784,728.69
$163,537,547.82

, a new facility is the most beneficial option.

uestion 2 (A & B)
Old Facility Renovation

Old Facility Revised Renovation

39.94%
26.01%
2.50
3.81

od, old facility with renovation is the most beneficial option.

uestion 3 (A & B)

PV favors new facility whereas the IRR favors the renovation of old facility.

lower discount rates and projects with higher returns have higher NPVs at larger
an reach a cross over rate where the NPV of the two projects becomes equal. If the
NPV and IRR will contradict. Initial investements also matter in this divergence.

Question 4

RR merely drops by 1% however the NPV drops by apprx $29.5 Million. In essence
considered. This amount reflects to apprx $29.5million in pv, adding these 5 years
an advantage/handicap to the renovation project.
Old Facility Renovation
Old Facility Revised Renovation
$312,310,914.76
$153,427,067.95
27.18%
2.40
3.58

Question 5

ns in previous questions the newer facility has higher NPV only in 20 year annuity
oject seems the better option based on its higher IRR, lower payback period and
the 20 year scenario). Recommendation is Renovate the old facility.

Qualitative Factors:

actors to be considered. Knights International has a strong employee loyalty and

ty is opted. New facility can also cause employee disontent leading to inefficiency
s in terms of increased employee compensation. Since the renovation project has
yalty Recommendation is Renovte the old facility.

Question 6

w facility & Project B will be renovation of old facility. Making a timeline for the cash
red rate of 12%, hence for all required rates below the incremental IRR we will keep
R will allign once the required rate becomes greater than the incremental IRR.
20 year annuity
$

N
73,730,400.00

20

me result then the project with better NPV or IRR can be choosen. If however NPV &
hen NPV is a better parameter to select project since NPV is calculated in required
e increase in value which is better than IRR

Question 7
Old Facility Renovation

$
$
$
$
$
$
$

Net Cash Flow Computation

$
$
$
$
$
$
$
$

Question 8 (A&B)

360
40%
20.00
170,000,000.00
1600
21,824,000.00
37.89
500.00
290.00
20
8,500,000.00
14.76
12%
288,000,000.00
21,824,000.00
167,040,000.00
99,136,000.00
39,654,400.00
59,481,600.00
8,500,000.00
67,981,600.00
$337,784,728.69

Old Facility Revised Renovation

$
$
$
$
$
$
$

$
$
$
$
$
$
$
$

360
40%
20.00
170,000,000.00
1200
21,824,000.00
50.52
500.00
310.00
20
8,500,000.00
19.68
12%
216,000,000.00
21,824,000.00
133,920,000.00
60,256,000.00
24,102,400.00
36,153,600.00
8,500,000.00
44,653,600.00
$163,537,547.82

st five years when there is depreciation expense

Old Facility Revised Renovation
n (Years - Annuity)
$
70,153,600.00
$
36,153,600.00
ect (5yr, 15yr) using the same discount rate
$
222,609,667.90
37.09%

$
$

$163,537,547.82
222,609,667.90
59,072,120.08
26.54%

Question 9

ill we reach a value where NPV changes from -ve to +ve

Old Facility Revised Renovation
360
40%
20.00
$
170,000,000.00

667
240120
$
$
$
$
$
$

21,824,000.00
90.89
500.00
310.00
20
8,500,000.00
35.40
12%

putation
$
$
$
$
$
$

120,060,000.00
21,824,000.00
74,437,200.00
23,798,800.00
9,519,520.00
14,279,280.00

5
15

$
$

8,500,000.00
22,779,280.00

$148,547.76

NPV positive is 1694 tons/day resulting in net cashflow of $91,060,000 and NPV of
nage of 667 tons/day is required to keep the NPV positive at $148,547 with annual
t cash flows of $22,779,280.

Question 10

, so it's probably not good to use the same discount rate for both projects.

$10,110,479.87

$ 73,730,400.00

$91,037,570.43

$95,062,617.38
$57,037,570.43

$ 34,000,000.00
$91,037,570.43