NET PRESENT VALUE (NVP)

Break-Even Analysis (numbers in millions of dollars) Increases 25% 5% Year Revenue Expenses Profit Profitable 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 100 125.0 156.3 195.3 244.1 305.2 381.5 476.8 596.0 745.1 931.3 1164.2 1455.2 150 157.5 165.4 173.6 182.3 191.4 201.0 211.1 221.6 232.7 244.3 256.6 269.4 50.0 32.5 9.1 21.7 61.8 113.7 180.5 265.8 374.4 512.4 687.0 907.6 1185.8 No 0 No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Current annual revenues are $100 million with expenses of $150 million. Current projections indicate revenues are growing at 25% per year and expenses are growing at 5% per year. Assume a cost of capital for your organization of 15%. If you paid $500 million for this company, what would be the NPV after 5 years? After 10 years? After 11 years? After 12 years? After 13 years? Step 4 How sensitive is the cost of capital in making the purchase decision? Keep all other model variables the same, but change the cost of capital to 10%. Change the cost of capital to 20%. Does your decision to purchase change, depending on the cost of capital? Step 5 Draft 5 years of an income statement for an organization of your choosing. Provide the level of detail for revenue, contractual allowances, costs of goods sold and expenses for this exercise to mean something to you. Based on just five years of net cash flows, determine how much you would be willing to pay for this organization. Be sure to state your assumption for cost of capital