51 Perform a net present value analysis of the sheeter replacement decision. While it is possible to perform such an analysis looking at the changes in all cost items, for this analysis, please calculate (1) the present value of future costs assuming the old sheeter is retained and (2) the present value of future costs assuming the old shecter is replaced. The net present value of the replacement decision will be the difference between these two values. 6. Conduct a sensitivity analysis of the decision. Your sensitivity analysis will need to show how changes in key inputs affect the NPV of this decision. The inputs included in your analysis should include the most important inputs and the inputs that are most likely to change during the project's lifespan. Your discussion should center on the change level in these key inputs that make the project acceptable or not acceptable. I do expect a chart which graphs the slopes of the sensitivity analysis. Watch the sensitivity analysis video from week 5 as a guide on making the graph (you will need five levels of change, e.g. -25%, -15%, 0%, 15%, 25% to help excel recognize the analysis). B E F G H D 1 Notes for Group C 2 New Sheeter: 40 ton capacity per day 3 Old Sheeter: 10 ton capacity per day 4 FY09 production: 16 tons per day. This amount will climb with growth projections 5 Precut paper is selling at $1,009 a ton. 6 Roll paper is selling at $915 a ton. 7 8 9 Exhibit 1 10 CARDED GRAPHICS, LLC: SHEETER REPLACEMENT DECISION 11 Income Statements 12 13 2007 2008 2009 14 Sales $ 9,398,775 $ 10,593,220 $ 14,100 514 15 Cost of Goods Sold $ 7,410,572 5 8,699,476 $ 11,276,894 16 $ 1,988,2035 1,893,744 $ 2,823,620 17 18 Selling and Administrative $ 1.159,635 S 1,409,408 $ 1,667,717 19 Other Expenses $ 27.495$ (88 528) $ (70951) 20 $ 1.132.140 S 1,497,936 S 1,738,668 21 22 Earnings Before Interest and Taxes $ 801,073 S 572,864 $ 1,226,854 23 24 Interest Expense $ 415,848 $ 831,968 $ 937,967 25 Income Before Taxes S 385,225 S (259,104) $ 288,887 26 27 Taxes $ 128,918 $ (207,373) $ 52,689 28 Net Income $ 256,307 S (51.731) S 236,198 29 30 Data source: Carded Graphics financial statements 31 32 Exhibit 2 2 CARDED GRAPHICS, LLC: SHEETER REPLACEMENT DECISION 3 Balance Sheets 4 5 2007 2008 2009 6 Cash $ 182,4935 32,2865 489,286 7 Accounts Receivable $ 1,050,207 S 959,361 5 1,229,704 8 Inventory 1,761,5835 1,838,4475 2,156,091 9 Deferred Taxes and Other $ 187370 S 221,694 $ 225,474 10 $ 3,181,6535 3,071,788 S 4100.555 11 12 Goodwill $ 612 968 $ 688,755 5 707,802 13 Land and Buildings 5 88,7925 4,896,565 S 4,896,565 14 Equipment $ 5,139,7435 9.096 8295 9.203.126 15 5 5,841,5035 14.682.149 14,807,493 16 Accumulated Depreciation $ 1.714,0995 2,244.9215 2,951,139 17 $ 4,127,404 5 12,437,228 5 11,856,354 18 19 5 7.309.0575 15.509,016 5 15.956,909 20 21 22 Line of Credit $ 1,035,9575 1.093,0225 1,033,330 23 Current Long Term Debt 3 660,370 S 739.846 5 986 531 24 Accounts Payable $ 664,027 S 1.248,788 5 1.537,000 25 Accrued Expenses 5 162.730 S 147.2935 213.981 25 5 2.543.084 5 3,243,949 5 4120842 22 28 Long Term Debt Net of Current Due S 2.745.1115 9.552 502 5 9,181,349 29 Deferred Income Taxes $ 323,377 5 370,190$ 389.223 30 5 3,069,488 5 9,923,6925 9,570,572 31 32 Shareholders' Equity 5 1.696,485 5 2,337,375 2,265,495 33 34 5 7309 0575 13.509.016 15.956.900 35 36 Inventory Detail 37 Raw Materials $ 242,4795 311.368S 448,010 38 Supplies $ 120,7735 110.9745 157.432 39 Work In Process $ 365,655 $ 234,535 5 219,975 AD Finished Goods 5 1,032,676 1 211.5705 1.130 611 41 5 1,761,5893 1.358475 2.196,091 43. Data.sme Card Graficante Tide Page Exhibit 1 Exhibit 2 Exhibit 4 Exhibit Pure BA H 1 2 B D E G Exhibit 4 CARDED GRAPHICS, LLC: SHEETER REPLACEMENT DECISION Inchustry Financial Data by Company 3 4 5 Yield on LT Debt Debt Rating 8.47% B 5.47% BBB 4.61% BBB 7.78% BB+ 4.86% BBB+ 6 Shares Share Book 7 Revenue Outstanding Price Value 8 Ticker (millions Beta (millions) (12/28/09) LT Debt 9 Packaging Companies 10 Graphic Packaging Holding GPK S 4,095 1.50 343 $ 3.47 $ 2,892 11 International Paper IP $ 23,366 1.45 433 $ 26.78 $ 8,729 12 Packaging Corp. of America PKG $ 2,148 1.15 103 S 23.01$ 571 13 Rock Tenn RKT $ 2,812 1.10 39 S 50.41 $ 1,293 14 Sonoco Products SON $ 3,597 1.00 100 $ 29.25 $ 462 15 16 Paper Companies 17 Neenah Paper NP $ 574 1.30 15 $ 13.95 $ 264 18 Temple-Inland TIN $ 3,577 0.88 107 $ 21.11 $ 2,850 19 Verso Paper Corp VRS $ 1,361 0.92 52 $ 2.61 $ 1,192 20 21 Typical Industry Clients 22 General Mills GIS $ 14,091 0.50 328 $ 70.81 $ 5.755 23 PepsiCo PEP $ 43,232 0.60 1,565 $ 60.80 $ 7,400 24 Target TGT $ 65,357 1.05 753 $ 48,37 $15,118 25 Wal-Mart WMT $ 408,214 0.60 3,925 $ 5345 $36,401 26 27 Data sources: Company annual reports, moneycentral.msn.com, Value Line, Yahoot Finance, Bloomberg 28 Note: Yields on long-term debt based on matunity close to 2020 29 7.86% BB 5.87% BBB 8.48% B 3.89% BBB+ 3.52% A 3.72% A+ 3.71% AA D E B 1 Exhibit 5 2 CARDED GRAPHICS, LLC: SHEETER REPLACEMENT DECISION 3 Capital Market Data as of December 28, 2009 4 5 6 Estimated Market Premium 7 6.00% 1.14% 2.69% 3.85% 4.63% 8 U.S. Government Bond Yields 92-year 10 5-year 11 10-year 12 30-year 13 14 Corporate Bond Yields (long-term) 15 AAA 16 AA 17 A 18 BBB 19 20 Data sources: U.S. Federal Reserve and Mergent Bond Record. 21 5.26% 5.44% 5.77% 6.37% 22 23 24 25 26 27 51 Perform a net present value analysis of the sheeter replacement decision. While it is possible to perform such an analysis looking at the changes in all cost items, for this analysis, please calculate (1) the present value of future costs assuming the old sheeter is retained and (2) the present value of future costs assuming the old shecter is replaced. The net present value of the replacement decision will be the difference between these two values. 6. Conduct a sensitivity analysis of the decision. Your sensitivity analysis will need to show how changes in key inputs affect the NPV of this decision. The inputs included in your analysis should include the most important inputs and the inputs that are most likely to change during the project's lifespan. Your discussion should center on the change level in these key inputs that make the project acceptable or not acceptable. I do expect a chart which graphs the slopes of the sensitivity analysis. Watch the sensitivity analysis video from week 5 as a guide on making the graph (you will need five levels of change, e.g. -25%, -15%, 0%, 15%, 25% to help excel recognize the analysis). B E F G H D 1 Notes for Group C 2 New Sheeter: 40 ton capacity per day 3 Old Sheeter: 10 ton capacity per day 4 FY09 production: 16 tons per day. This amount will climb with growth projections 5 Precut paper is selling at $1,009 a ton. 6 Roll paper is selling at $915 a ton. 7 8 9 Exhibit 1 10 CARDED GRAPHICS, LLC: SHEETER REPLACEMENT DECISION 11 Income Statements 12 13 2007 2008 2009 14 Sales $ 9,398,775 $ 10,593,220 $ 14,100 514 15 Cost of Goods Sold $ 7,410,572 5 8,699,476 $ 11,276,894 16 $ 1,988,2035 1,893,744 $ 2,823,620 17 18 Selling and Administrative $ 1.159,635 S 1,409,408 $ 1,667,717 19 Other Expenses $ 27.495$ (88 528) $ (70951) 20 $ 1.132.140 S 1,497,936 S 1,738,668 21 22 Earnings Before Interest and Taxes $ 801,073 S 572,864 $ 1,226,854 23 24 Interest Expense $ 415,848 $ 831,968 $ 937,967 25 Income Before Taxes S 385,225 S (259,104) $ 288,887 26 27 Taxes $ 128,918 $ (207,373) $ 52,689 28 Net Income $ 256,307 S (51.731) S 236,198 29 30 Data source: Carded Graphics financial statements 31 32 Exhibit 2 2 CARDED GRAPHICS, LLC: SHEETER REPLACEMENT DECISION 3 Balance Sheets 4 5 2007 2008 2009 6 Cash $ 182,4935 32,2865 489,286 7 Accounts Receivable $ 1,050,207 S 959,361 5 1,229,704 8 Inventory 1,761,5835 1,838,4475 2,156,091 9 Deferred Taxes and Other $ 187370 S 221,694 $ 225,474 10 $ 3,181,6535 3,071,788 S 4100.555 11 12 Goodwill $ 612 968 $ 688,755 5 707,802 13 Land and Buildings 5 88,7925 4,896,565 S 4,896,565 14 Equipment $ 5,139,7435 9.096 8295 9.203.126 15 5 5,841,5035 14.682.149 14,807,493 16 Accumulated Depreciation $ 1.714,0995 2,244.9215 2,951,139 17 $ 4,127,404 5 12,437,228 5 11,856,354 18 19 5 7.309.0575 15.509,016 5 15.956,909 20 21 22 Line of Credit $ 1,035,9575 1.093,0225 1,033,330 23 Current Long Term Debt 3 660,370 S 739.846 5 986 531 24 Accounts Payable $ 664,027 S 1.248,788 5 1.537,000 25 Accrued Expenses 5 162.730 S 147.2935 213.981 25 5 2.543.084 5 3,243,949 5 4120842 22 28 Long Term Debt Net of Current Due S 2.745.1115 9.552 502 5 9,181,349 29 Deferred Income Taxes $ 323,377 5 370,190$ 389.223 30 5 3,069,488 5 9,923,6925 9,570,572 31 32 Shareholders' Equity 5 1.696,485 5 2,337,375 2,265,495 33 34 5 7309 0575 13.509.016 15.956.900 35 36 Inventory Detail 37 Raw Materials $ 242,4795 311.368S 448,010 38 Supplies $ 120,7735 110.9745 157.432 39 Work In Process $ 365,655 $ 234,535 5 219,975 AD Finished Goods 5 1,032,676 1 211.5705 1.130 611 41 5 1,761,5893 1.358475 2.196,091 43. Data.sme Card Graficante Tide Page Exhibit 1 Exhibit 2 Exhibit 4 Exhibit Pure BA H 1 2 B D E G Exhibit 4 CARDED GRAPHICS, LLC: SHEETER REPLACEMENT DECISION Inchustry Financial Data by Company 3 4 5 Yield on LT Debt Debt Rating 8.47% B 5.47% BBB 4.61% BBB 7.78% BB+ 4.86% BBB+ 6 Shares Share Book 7 Revenue Outstanding Price Value 8 Ticker (millions Beta (millions) (12/28/09) LT Debt 9 Packaging Companies 10 Graphic Packaging Holding GPK S 4,095 1.50 343 $ 3.47 $ 2,892 11 International Paper IP $ 23,366 1.45 433 $ 26.78 $ 8,729 12 Packaging Corp. of America PKG $ 2,148 1.15 103 S 23.01$ 571 13 Rock Tenn RKT $ 2,812 1.10 39 S 50.41 $ 1,293 14 Sonoco Products SON $ 3,597 1.00 100 $ 29.25 $ 462 15 16 Paper Companies 17 Neenah Paper NP $ 574 1.30 15 $ 13.95 $ 264 18 Temple-Inland TIN $ 3,577 0.88 107 $ 21.11 $ 2,850 19 Verso Paper Corp VRS $ 1,361 0.92 52 $ 2.61 $ 1,192 20 21 Typical Industry Clients 22 General Mills GIS $ 14,091 0.50 328 $ 70.81 $ 5.755 23 PepsiCo PEP $ 43,232 0.60 1,565 $ 60.80 $ 7,400 24 Target TGT $ 65,357 1.05 753 $ 48,37 $15,118 25 Wal-Mart WMT $ 408,214 0.60 3,925 $ 5345 $36,401 26 27 Data sources: Company annual reports, moneycentral.msn.com, Value Line, Yahoot Finance, Bloomberg 28 Note: Yields on long-term debt based on matunity close to 2020 29 7.86% BB 5.87% BBB 8.48% B 3.89% BBB+ 3.52% A 3.72% A+ 3.71% AA D E B 1 Exhibit 5 2 CARDED GRAPHICS, LLC: SHEETER REPLACEMENT DECISION 3 Capital Market Data as of December 28, 2009 4 5 6 Estimated Market Premium 7 6.00% 1.14% 2.69% 3.85% 4.63% 8 U.S. Government Bond Yields 92-year 10 5-year 11 10-year 12 30-year 13 14 Corporate Bond Yields (long-term) 15 AAA 16 AA 17 A 18 BBB 19 20 Data sources: U.S. Federal Reserve and Mergent Bond Record. 21 5.26% 5.44% 5.77% 6.37% 22 23 24 25 26 27