Chapter 3 Assignment Investment Opportunity Warehouse A company has an opportunity to invest in a new warehouse The company anticipates the following regarding their incremental P L and investments Incremental Cash Flow Profit and Loss Year 1 (Introduction) 2 (Growth) 3 (Maturity) 4 (Maturity) 5 (Decline) Sale 500 000 600 000 740 000 800 000 500 000 Variable costs (materials) 200 000 265 000 350 000 380 000 225 000 Miscellaneous costs (assumptions) 50 000 60 000 65 000 70 000 75 000 Investments Warehouse, computers etc 800 000 Cost of delivery 35 000 Installation costs (assumption) 125 000 Training and facilitating 50 000 Scrap value after 5 years 250 000 Required Calculate the initial investment and the annual net cash flows based on the information above Assuming that discount rate is 12 0 please find the net present value (NPV) of the investment opportunity You are to use both the PV (or NPV) function in Excel, but also demonstrate a solution including a table Also, calculate the internal rate of return (IRR) When is the investment breaking even (paid back) Calculate the exact break even (payback) period, which assumes equally spread cash flow over the year Show with two decimals Illustrate the break even period by constructing a graph, showing both the discounted payback period and the non discounted payback period Evaluate the investment based on the answers from the above questions

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Chapter 3 Assignment

Investment Opportunity - Warehouse

A company has an opportunity to invest in a new warehouse.

The company anticipates the following regarding their incremental P/L and investments:

Incremental Cash Flow

Profit and Loss

Year	1 (Introduction)	2 (Growth)	3 (Maturity)	4 (Maturity)	5 (Decline)

Sale	500.000	600.000	740.000	800.000	500.000
Variable costs (materials)	200.000	265.000	350.000	380.000	225.000
Miscellaneous costs (assumptions)	50.000	60.000	65.000	70.000	75.000

Investments


Warehouse, computers etc.			800.000
Cost of delivery			35.000
Installation costs (assumption)			125.000
Training and facilitating			50.000

Scrap value after 5 years			250.000

Required

Calculate the initial investment and the annual net cash flows based on the information above.
Assuming that discount rate is 12.0% please find the net present value (NPV) of the investment opportunity. You are to use both the PV (or NPV) function in Excel, but also demonstrate a solution including a table.
Also, calculate the internal rate of return (IRR).
When is the investment breaking even (paid back)? Calculate the exact break-even (payback) period, which assumes equally spread cash flow over the year. Show with two decimals.
Illustrate the break-even period by constructing a graph, showing both the discounted payback period and the non-discounted payback period.
Evaluate the investment based on the answers from the above questions.