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 2000 4000 5600 6800 7400 3700 1800
Inflation Rate 2.0% 2.5% 3.0% 3.5% 4.0% 4.0% 4.0%
Real Cost of Capital 11.0% 11.2% 11.4% 11.6% 11.8% 12.0% 12.2%
Tax Rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%

Discounting
Discount Rate = Cost of Capital
Cumulative Discount Factor 0.0%

Price or Cost / Unit

Sales Revenue / Unit $9.70
Variable Cost / Unit $7.40
Cash Fixed Costs $5,280

Cash Flow Forecasts

Sales Revenue
Variable Costs
Gross Margin

Cash Fixed Costs

Depreciation
Total Fixed Costs

Operating Profit
Taxes
Net Profit

Add Back Depreciation

Operating Cash Flow

Investment in Plant & Equip ($11,350) $1,400

Cash Flows
Present Value of Each Cash Flow
Net Present Value
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 2000 4000 5600 6800 7400 3700 1800
Unit Sales Scale Factor 100.0%
Unit Sales
Inflation Rate 2.0% 2.5% 3.0% 3.5% 4.0% 4.0% 4.0%
Real Cost of Capital Increment 0.2% 0.4% 0.6% 0.8% 1.0% 1.2%
Real Cost of Capital 11.0%
Tax Rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%

Discounting
Discount Rate = Cost of Capital 13.2% 2.5% 3.0% 3.5% 4.0% 4.0% 4.0%
Cumulative Discount Factor 0.0% 13.2% 16.1% 19.5% 23.7% 28.7% 33.8% 39.2%

Price or Cost / Unit

Sales Revenue / Unit $9.70 $9.94 $10.24 $10.60 $11.02 $11.46 $11.92

Variable Costs / Unit:

Direct Labor $3.50
Materials $2.00
Selling Expenses $1.20
Other $0.70
Total Variable Cost / Unit

Cash Fixed Costs:

Lease Payment $2,800
Property Taxes $580
Administration $450
Advertising $930
Other $520
Total Cash Fixed Costs
Working Capital
Work Cap / Next Yr Unit Sales $0.87
Working Capital

Cash Flow Forecasts

Sales Revenue $0 $0 $0 $0 $0 $0 $0
Variable Costs $0 $0 $0 $0 $0 $0 $0
Gross Margin $0 $0 $0 $0 $0 $0 $0

Cash Fixed Costs $0 $0 $0 $0 $0 $0 $0

Depreciation $1,421 $1,421 $1,421 $1,421 $1,421 $1,421 $1,421
Total Fixed Costs $1,421 $1,421 $1,421 $1,421 $1,421 $1,421 $1,421

Operating Profit ($1,421) ($1,421) ($1,421) ($1,421) ($1,421) ($1,421) ($1,421)

Taxes ($498) ($498) ($498) ($498) ($498) ($498) ($498)
Net Profit ($924) ($924) ($924) ($924) ($924) ($924) ($924)

Add Back Depreciation $1,421 $1,421 $1,421 $1,421 $1,421 $1,421 $1,421
Operating Cash Flow $498 $498 $498 $498 $498 $498 $498

Investment in Working Capital

Investment in Plant & Equip ($11,350) $1,400
Investment Cash Flow

Cash Flows
Present Value of Each Cash Flow $0 $0 $0 $0 $0 $0 $0 $0
Net Present Value $0

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
Input Values for
Date 0 Real Cost of Capital

Sensitivity of Project NPV to Unit Sales and Cost of Capital

15000
Project NPV
10000

5000

0
Row 94 Row 95

Row 94
Row 95
-5000

Row 96
Row 96 Row 97
Row 97
Row 98

Row 98
Unit Sales Scale Factor

Real Cost of Capital