Inputs Base-Case Variables Used in the C

Equipment cost $3,400 Unit sales

Salvage value, equipment, Year 4 $300 Sales price per unit
Opportunity cost $0 Variable cost per unit
Externalities (cannibalization) $0 Nonvariable costs (excl
Units sold, Year 1 550
Annual change in units sold, after Year 1 4.00% Investment Outlays at
Sales price per unit, Year 1 $11.60 Equipment
Annual change in sales price, after Year 1 2.00% Initial investment in wor
Variable cost per unit (VC), Year 1 $6.00 Opportunity cost, after t
Annual change in VC, after Year 1 2.00% Net Cash Flows Over
Nonvariable cost (Non-VC), Year 1 $2,000 Sales revenues = Units
Annual change in Non-VC, after Year 1 2.00% Variable costs = Units ×
Project WACC 10.00% Nonvariable costs (excl
Tax rate 40.00% Depreciation:
Working capital as % of next year's sales 12.65% Operating profit (EBIT)
Taxes on operating prof
Net operating profit afte
NPV $ 36 Add back depreciation
IRR 10.35% Opportunity cost, after t
Cannibalization or comp
Salvage value (taxed as
Tax on salvage value (S
Change in WC: Outflow
Project net cash flows

Accelerated Depreciation
Depreciable basis: $3,400 Rate/year 33% 45% 15% 7%
$1,122 $1,530 $510 $238

Working Capital
Years 0 1 2 3 4
807 856 908 963
Variables Used in the Cash Flow Forecas 0 1 2 3 4
Unit sales 550 572 595 619
Sales price per unit $11.60 $11.83 $12.07 $12.31
Variable cost per unit $6.00 $6.12 $6.24 $6.37
Nonvariable costs (excluding depreciation) $2,000 $2,040 $2,081 $2,122
Cash Flows At End of Year
Investment Outlays at Time = 0 0 1 2 3 4
Equipment -$3,400
Initial investment in working capital
Opportunity cost, after taxes 0
Net Cash Flows Over the Project's Life
Sales revenues = Units × Price/unit $6,380 $6,768 $7,179 $7,616
Variable costs = Units × Cost/unit 3,300 3,501 3,713 3,939
Nonvariable costs (excluding depreciation) 2,000 2,040 2,081 2,122
Depreciation: 1,122 1,530 510 238
Operating profit (EBIT) -$42 -$303 $875 $1,316
Taxes on operating profit -17 -121 350 526
Net operating profit after taxes -$25 -$182 $525 $790
Add back depreciation 1,122 1,530 510 238
Opportunity cost, after taxes 0 0 0 0
Cannibalization or complementary effects, after ta 0 0 0 0
Salvage value (taxed as ordinary income) 300
Tax on salvage value (SV is taxed at 40%) -120
Change in WC: Outflow (–) or recovery ( -$807 -49 -52 -55 963
Project net cash flows: Time Line -$4,207 $1,048 $1,296 $980 $2,171

Deviation Sales PriceNPV

Price $ 36
-30% 8.12
0 11.6
30% 15.08

Deviation Eqipment cNPV

$ 36
-30% $2,380
0 $3,400
 30% $4,420

Deviation V.Cost NPV

$ 36
-30% $4
0 $6
30% $8
Inputs: Worst
Probability of Scenario 25%
Equipment cost $4,250
Salvage value, equipment, Year 4 $300
Opportunity cost $0
Externalities (cannibalization) $0
Units sold, Year 1 412
Annual change in units sold, after Year 1 -6.00%
Sales price per unit, Year 1 $8.70
Annual change in sales price, after Year 2.00%
Variable cost per unit (VC), Year 1 $7.50
Annual change in VC, after Year 1 2.00%
Nonvariable cost (Non-VC), Year 1 $2,500
Annual change in Non-VC, after Year 1 2.00%
Project WACC 10.00%
Tax rate 50.00%
Working capital as % of next year's sales 12.65%

NPV $ -5,848
IRR

Accelerated Depreciation
Depreciable basis: $4,250 Rate/year 33% 45%
$1,403 $1,913

Working Capital
Years 0 1 2
453 435 417
 Variables Used in the Cash Flow Forecas 0 1 2 3
Unit sales 412 387 364
Sales price per unit $8.70 $8.87 $9.05
Variable cost per unit $7.50 $7.65 $7.80
Nonvariable costs (excluding depreciation) $2,500 $2,550 $2,601
Cash Flows At End of Year
Investment Outlays at Time = 0 0 1 2 3
Equipment -$4,250
Initial investment in working capital
Opportunity cost, after taxes 0
Net Cash Flows Over the Project's Life
Sales revenues = Units × Price/unit $3,584 $3,437 $3,295
Variable costs = Units × Cost/unit 3,090 2,963 2,841
Nonvariable costs (excluding depreciation) 2,500 2,550 2,601
Depreciation: 1,403 1,913 638
Operating profit (EBIT) -$3,408 -$3,988 -$2,784
Taxes on operating profit -1,704 -1,994 -1,392
Net operating profit after taxes -$1,704 -$1,994 -$1,392
Add back depreciation 1,403 1,913 638
Opportunity cost, after taxes 0 0 0
Cannibalization or complementary effects, after ta 0 0 0
Salvage value (taxed as ordinary income)
Tax on salvage value (SV is taxed at 40%)
Change in WC: Outflow (–) or recovery ( -$453 18 18 17
Project net cash flows: Time Line -$4,703 -$284 -$64 -$737

15% 7%
$638 $298 Deviation Sales PriceNPV
Price $ -5,848
-30% 6.09 -7414
0 $8.70 -5848
3 4 30% $11.31 -4281
400
Deviation Eqipment cNPV
$ -5,848
-30% $2,975 -5103
 0 $4,250 -5848
30% $5,525 -6592

Deviation V.Cost NPV

$ -5,848
-30% $5 -4306
0 $7.50 -5848
30% $10 -7390
 4
342
$9.23
$7.96
$2,653
d of Year
4

$3,159
2,724
2,653
298
-$2,515
-1,257
-$1,257
298
0
0
300
-150
400
-$409
 Best Variables Used in the C
Inputs 25% Unit sales
Equipment cost $2,550 Sales price per unit
Salvage value, equipment, Year 4 $300 Variable cost per unit
Opportunity cost $0 Nonvariable costs (exc
Externalities (cannibalization) $0
Units sold, Year 1 688 Investment Outlays a
Annual change in units sold, after Year 1 14.00% Equipment
Sales price per unit, Year 1 $14.50 Initial investment in wo
Annual change in sales price, after Year 2.00% Opportunity cost, after
Variable cost per unit (VC), Year 1 $4.50 Net Cash Flows Ove
Annual change in VC, after Year 1 2.00% Sales revenues = Units
Nonvariable cost (Non-VC), Year 1 $1,500 Variable costs = Units
Annual change in Non-VC, after Year 1 2.00% Nonvariable costs (exc
Project WACC 10.00% Depreciation:
Tax rate 30.00% Operating profit (EBIT)
Working capital as % of next year's sales 12.65% Taxes on operating pro
Net operating profit aft
Add back depreciation
Opportunity cost, after
Cannibalization or com
Salvage value (taxed a
Tax on salvage value (
Change in WC: Outflow
Project net cash flow
NPV $ 13,379
IRR 112.01%

Accelerated Depreciation
Depreciable basis: $0 Rate/year 33% 45% 15% 7%
$841.50 $1,147.50 $382.50 $178.50

Working Capital
Years 0 1 2 3
$1,261.96 $1,467.41 $1,706.31 $1,984.09
Variables Used in the Cash Flow Forecas 0 1 2 3 4
Unit sales 688 784 894 1,019
Sales price per unit $14.50 $14.79 $15.09 $15.39
Variable cost per unit $4.50 $4.59 $4.68 $4.78
Nonvariable costs (excluding depreciation) $1,500 $1,530 $1,561 $1,592
Cash Flows At End of Year
Investment Outlays at Time = 0 0 1 2 3 4
Equipment -$2,550
Initial investment in working capital
Opportunity cost, after taxes 0
Net Cash Flows Over the Project's Life
Sales revenues = Units × Price/unit $9,976 $11,600 $13,489 $15,685
Variable costs = Units × Cost/unit 3,096 3,600 4,186 4,868
Nonvariable costs (excluding depreciation) 1,500 1,530 1,561 1,592
Depreciation: 842 1,148 383 179
Operating profit (EBIT) $4,539 $5,323 $7,359 $9,047
Taxes on operating profit 1,362 1,597 2,208 2,714
Net operating profit after taxes $3,177 $3,726 $5,152 $6,333
Add back depreciation 842 1,148 383 179
Opportunity cost, after taxes 0 0 0 0
Cannibalization or complementary effects, after ta 0 0 0 0
Salvage value (taxed as ordinary income) 300
Tax on salvage value (SV is taxed at 40%) -90
Change in WC: Outflow (–) or recovery ( -$1,262 -205 -239 -278 1,984
Project net cash flows: Time Line -$3,812 $3,813 $4,634 $5,256 $8,705

Deviation from base Sales Price NPV

Price $ 13,379
-30% 10.15 5234
0 $14.50 13379
30% 18.85 21525

4 Deviation from base Eqipment cost NPV

$ 13,379
-30% $1,785 13953
0 $2,550 13379
30% $3,315 12805
Deviation from base V.Cost NPV
$ 13,379
-30% $3.15 15954
0 $4.50 13379
30% $5.85 10805