1. Calculate NPV and IRR of the DYOD project, following steps for the calculation of NPV and IRR of the MMDC project. Step1: Forecast NOPLAT [Use an Excel file uploaded on Waseda Moodle.] 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2120 Revenue 4.500 $8.860 $2 808 $101513 $11.440 $12 345 $13,344 $14.411 Revenue Growth 52 4% 22 6% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Production Costs Fixed Production Expense (exel depreciation) 575 575 587 508 610 622 835 848 660 874 Variable Production Costs 2 035 3.404 4,201 4.680 5.078 5,521 6,000 8.519 7.079 7.685 Depreciation 152 152 152 152 184 178 192 207 224 242 Total Production Costs 2 767 4.131 5.419 5.852 6,827 7:374 1.863 8,601 Selling, General & Administrative 1.250 1.155 1.735 2.102 2 270 2 452 2 648 2,860 3.089 3,336 3,603 Total Operating Expenses 1250 3.817 5.866 8 304 8,087 11.209 2,204 Operating Profit ($1 250) $583 5024 $1.277 $1.383 $1.504 $1.624 $1,753 $1.802 $2.045 $2,207 Tax (40%) $500) $233 5308 $51 8602 $701 $757 $818 $883 NOPLAT $750 $351 $1052 $1 135 $1,227 $1,324 Step2: Forecast OFCF 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 NOPLAT $750 $838 5874 $1,052 $1.135 $1,227 $1,324 (+)Depreciation Expense 152 152 152 152 164 178 192 207 224 242 (-)Increase in Net Working Capital 800 108 427 87 113 122 133 154 167 180 (-)Capital Expenditures 1.470 052 152 143 152 334 381 380 421 454 491 530 Operating Free Cash Flow (3.020 ($556] $170 5679 $541 $583 $631 $880 5734 $703 $856 Note that, to calculate increase in net working capital, you have to calculate net working capital as follows.2010 Working Capital Assumptions 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Minimum Cash Balance as % of Sales Days Sales Outstanding 3.0%% 3.0% 3.0% Inventory Tumover (prod. Cost/ending inv.) 59.2 3.0% 59.2 3.0% 59.2 3.0% 59.2 3.0% 3.0% 3.0% 3.0% Days Payable Outstanding (based on tot. op. exp.) 7.7 59.2 59.2 8.3 30.8 12.7 50.2 50.2 50.2 30.9 12.7 50.2 31.0 12.7 12.7 31.0 31.0 12.7 12.7 31.0 127 31.0 12.7 31.0 31.0 31.0 Working capital at the end of year Cash Balance Accounts Receivable 135 206 252 272 204 730 1.113 1.384 1.473 318 1.501 343 371 400 432 Inventories 800 350 1.718 1,855 408 2.004 308 427 2,164 461 2,337 Accounts Payable 318 484 408 503 538 640 581 621 627 677 Net Working Capital 800 206 1.332 1.419 747 1.532 806 1.654 871 1.787 041 2.084 1,018 1,930 2,251 2,431 Net working capital in 2010 information is obtained from Table 2.Step3: Determine perpetual growth, i.e., assumed perpetual growth rate of OFCF after 2021, and discount rate. Here (for the MMDC project) I assume 3% for perpetual growth and 8.4% for discount rate. Step4: Calculate NPV and IRR. 2010 2011 2012 2013 2014 INPV Calculation 2015 2016 2017 2018 2019 2020 Perpetual Growth 3.00% Disc. Rate 8.40% Operating Free Cash Flow (up to 10th year) Terminal Value ($3.020) ($556) $170 $679 $541 $583 5631 $680 $734 5793 $856 Operating Free Cash Flow Discount factor ($3.020) ($556) $170 $679 1.000 $541 1.084 $583 $631 $680 1.175 5734 $16,332 PV of OFCF 1.274 1.381 $793 $17,188 NPV ($3 020 ($513) 1.497 $145 1.622 $533 1.750 1.208 5382 2.067 $7.143 $320 2.240 5380 $387 $384 $7,672 IRR 24% 2. Based on NPV and IRR of both projects, discuss which project you would recommend to the capital budgeting meeting. If necessary, show your additional calculation and consideration
