THE BILLARDS CLOTHING CORPORATION TECKER SYMBOL OOS) IS CONSIDERING A PROPOSAL FORAN INVESTMENT IN A NEW CLOTHING MANUFACTURE MACHINE THE PROJECT REQUIRES AN IMMEDIATE INVESTMENT (IN THOUSANDS): 1) MACHINERY COST - 58,000 2) COMMITMENT OF ADDED NETWORKING CAPITAL (NWC) $2,000 3) DILLARDS EXPECTS THAT SALES WILL INCREASE BY $15,000 PER YEAR FOR 5 YEARS (LE YEAR 115.000, YEAR 2- $15.000,... NOT YEAR 2 = $30,000) 4) AT THE END OF STH YEAR THE MACHINES WILL BE WORN OUT AND PROJECT WILL END S) PRODUCTION OF NEW OUTPUT WILL REQUIRE OPERATING COST OF 794 OF SALES 6) AT THE END OF STH YEAR DILLARDS EXPECTS NETWORKING CAPITAL (WC) WILL DE RECOVERED 7) SALVAGE VALUE OF MACHINERY IS EXPECTED TO GENERATE 54,000 AFTER TAX 8) THE MACHINERY WILL HAVE DEPRECIATED UISNG THE STRAIGHT LINE METHOD OVER EACH OF THE 5 YEARS 9) DILLARD'S TAX RATE=40% AND ITS COST OF CAPITAL -9,6% A) EVALUATE THIS PROJECT OPPORTUNITY: PROJECT ACCEPTABLE: NPV > IRR > COST OF CAPITAL B) DILLARDS EXPECTS SALES REVENUE INCREASE TO = $15,000 / YR HOW LOW CAN REVENUE ACTUALLY GO AND THE PROJECT IS ACCEPTABLE ANSWER: SPREADSHEET: DETERMINATION OF COSTS AND ANNUAL CASH FLOWS: AFTER TAX NPV AND IRR NPV POSITIVE TELLS US LITTLE ABOUT THE NESTLE PROJECT'S UNCERTAINITY THE PROJECTS SALES, OPERATING COSTS, AND TERMINAL CASH ROWS ARE UNCERTAIN + ENHANCEMENT: WE CAN USE THEIR EXPECTED VALUES IN CALCULATING NPV USING MONTE CARLO MONTE CARLO SIMULATION ALLOWS US TO DIG DEEPER INTO THE UNCERTAINTY UNDERLYING OUR ASSUMPTIONS FUTURE SALES: MODEL WITH A NORMAL DISTRIBUTION: EXPECTATION = $15,000 WITH STDEV = 1000, 2000, 3000, 4000, 5000 FOR YEARS 1-5 THIS RECOGNIZES THAT FUTURE SALES BECOME MORE UNCERTAIN AS TIME FROM TODAY INCREASES FUTURE OPERATING EXPENSES: WE HAVE NO REASON FOR A CENTRAL TENDENACY. 10 THUS WE USE A UNIFORM DISTRIBUTION EXPECTATION - 75% OF SALES, WITH A MINIMUM = 70% AND A MAXIMUM -50% 11 EVALUATE THIS PROJECT OPPORTUNITY: PROJECT ACCEPTABLE: NPV >O 7 IRR > COST OF CAPITAL ? 12 15 ANSWER: 14 SPREADSHEET: DETERMINATION OF COSTS AND ANNUAL CASH FLOWS: AFTER TAX NPV AND IRR 15 16 12 18 10 20 21 22 24 25 36 27 SNEARE 30 11 32 23 34 15 DETERMINISTIC SOLUTION MONTE CARLO SOLUTION O Local backup on Xout Calibri - 11 Genera - AA AQE 15 Coy Format B/U Merge Center Wan Tell O. % *** Conto formatas Formatting Tbile Symbol Auto Fier Jil c THE DILLARDS CLOTHING CORPORATION (TICKER SYMBOL DD) IS CONSIDERING A PROPOSAL FOR AN INVESTMENT IN A NEW CLOTHING MANUFACTURE MACHINE THE PROJECT REQUIRES AN IMMEDIATE INVESTMENT (IN THOUSANDS) 1) MACHINERY COST - $8.000 2) COMMITMENT OF ADORO NETWORKING CAPITAL (NWC) - $2,000 3) DILLARDS EXPECTS THAT SALES WILL INCREASE BY $15,000 PER YEAR FOR 5 YEARS (1E, YEAR 1 - 515,000, YEAR 2- $15,000, NOT YEAR 2 $30,000) 4) AT THE END OF STH YEAR THE MACHINES WILL BE WORN OUT AND PROJECT WILL END 5) PRODUCTION OF NEW OUTPUT WILL REQUIRE OPERATING COST OF 754 OF SALES 6) AT THE END OF STH YEAR DILLARDS EXPECTS NETWORKING CAPITAL (NWC) WILL BE RECOVERED 7) SALVAGE VALUE OF MACHINERY IS EXPECTED TO GENERATE 54,000 AFTER TAX 8) THE MACHINERY WILL HAVE DEPRECIATED USNG THE STRAIGHT LINE METHOD OVER EACH OF THE 5 YEARS 9) DILLARD'S TAX RATE - 40% AND ITS COST OF CAPITAL - 9.6% A) EVALUATE THIS PROJECT OPPORTUNITY: PROJECT ACCEPTABLE NPV >07 ERR > COST OF CAPITAL B) DILLARDS EXPECTS SALES REVENUE INCREASE TO $35,000 / YR HOW LOW CAN REVENUE ACTUALLY GO AND THE PROJECT IS ACCEPTABLE ? 0 1 1 3 ANSWER: SPREADSHEET: DETERMINATION OF COSTS AND ANNUAL CASH FLOWS; AFTER TAX NPV AND IRR 20 22 24 23 DETERMINISTIC SOLUTION MONTE CARLO SOLUTION + Local backup on AutoSave A88 Q 2 CLASSE_DILLARDS_CORPORATION_NEW_MACHINE_CASH_FLOW_ANALYSIS_HOMEWORK (1) Data Review View Tell me Home Insert Draw Page Layout Formulas Share Comments 14 ch mert AA General Calibrihodil BT , D. Paste = = 1 $ % Caritional Format Cel Formangan Table Styles Delete Format Sort & Find & Fier Select Anal Det Product Deactivated on, most features of Excel will be disabled Reactiva C2 NPV POSITIVE TELLS US UTTLE ABOUT THE NESTLE PROJECTS UNCERTAINTY. THE PROJECTS SALES, OPERATING COSTS, AND TERMINAL CASH FLOWS ARE UNCERTAIN ENHANCEMENT: WE CAN USE THEIR EXPECTED VALUES IN CALCULATING NPV USING MONTE CARLO MONTE CARLO SIMULATION ALLOWS US TO DIG DEEPER INTO THE UNCERTAINTY UNDERLYING OUR ASSUMPTIONS FUTURE SALES: MOOEL WITH A NORMAL DISTRIBUTION EXPECTATION $15,000 WITH STDEV - 1000, 2000, 3000, 4000, 5000 IOR YEAIS 1-5 THIS RECOGNIZES THAT FUTURE SALES BECOME MORE UNCERTAIN AS TIME FROM TODAY INCREASES FUTURE OPERATING EXPENSES: WE HAVE NO REASON FOR A CENTRAL TENDENACY. THUS WE USE A UNIFORM DISTRIBUTION EXPECTATION - 75% OF SALES, WITH A MINIMUM-70% AND A MAXIMUM - 80% EVALUATE THIS PROJECT OPPORTUNITY: PROJECT ACCEPTABLE: NPV 07 IRR > COST OF CAPITAL 10 ANSWER: 14 SPREADSHEET: DETERMINATION OF COSTS AND ANNUAL CASH FLOWS: AFTER TAX NPV AND IRR 15 16 17 10 10 120 21 22 23 24 DETERMINETIC SOLUTION MONTE CARLO SOLUTION FI Q Share Come AutoSave ABD CLASS6_DILLARDS_CORPORATION_NEW_MACHINE_CASH FLOW_ANALYSIS_HOMEWORK (1) Home Insert Drew Page Layout Formulas Data Review View Tell me Calibrl (Body 11 WAA 3 General Delete Paste %) Conditional Format Cell Formatting Table Styles al Format Product Deactivated On,most features of Excel will be disabled ME 2:29. 0. Satt find The Select Andy Dia Reach THE DILLARDS CLOTHING CORPORATION MICKER SYMBOL DDS) IS CONSIDERING A PROPOSAL FOR AN INVESTMENT IN A NEW CLOTHING MANUFACTURE MACHINE THE PROJECT REQUIRES AN IMMEDIATE INVESTMENT (IN THOUSANDS 1) MACHINERY COST - $8,000 2) COMMITMENT OF ADDED NETWORKING CAPITAL INWO) - 52,000 3) DILLARDS EXPECTS THAT SALES WILL INCREASE BY $15,000 PER YEAR FOR S YEARS OLE.YEAR 1 $15,000, YEAR 2515,000... NOT YEAR 2- $30,000 4) AT THE END OF STH YEAR THE MACHINES WILL BE WORN OUT AND PROTECT WILL END S) PRODUCTION OF NEW OUTPUT WILL REQUIRE OPERATING COST OF PSN OF SALES G AT THE END OF STH YEAR DILLARDS DECTS NETWORKING CAPITAL INWC) WILL BE RECOVERED 7) SALVAGE VALUE OF MACHINERY IS EXPECTED TO GENERATE 54.000 AFTER TAX THE MACHINERY WILL HAVE DEPRECATED UISNG THE STRAIGHT LINE METHOD OVER EACH OF THE YEARS 9) DILLARD'S TAX RATE ON AND ITS COST OF CAPITAL 9.6% ALEVALUATE THIS PROJECT OPPORTUNITY PROJECT ACCEPTABLE: NPV O IRRCOST OF CAPITAL B) DILLARDS EXPECTS SALES REVENUE INCREASE TO - $15,000/YR HOW LOW CAN REVENUE ACTUALLY GO AND THE PROJECT IS ACCEPTABLE ? 14 15 ANSWER 16 SPREADSHEET. DETERMINATION OF COSTS AND ANNUAL CASH FLOWS: AFTER TAX NPV AND IRS 11 13 13 17 10 19 20 21 22 23 THE BILLARDS CLOTHING CORPORATION TECKER SYMBOL OOS) IS CONSIDERING A PROPOSAL FORAN INVESTMENT IN A NEW CLOTHING MANUFACTURE MACHINE THE PROJECT REQUIRES AN IMMEDIATE INVESTMENT (IN THOUSANDS): 1) MACHINERY COST - 58,000 2) COMMITMENT OF ADDED NETWORKING CAPITAL (NWC) $2,000 3) DILLARDS EXPECTS THAT SALES WILL INCREASE BY $15,000 PER YEAR FOR 5 YEARS (LE YEAR 115.000, YEAR 2- $15.000,... NOT YEAR 2 = $30,000) 4) AT THE END OF STH YEAR THE MACHINES WILL BE WORN OUT AND PROJECT WILL END S) PRODUCTION OF NEW OUTPUT WILL REQUIRE OPERATING COST OF 794 OF SALES 6) AT THE END OF STH YEAR DILLARDS EXPECTS NETWORKING CAPITAL (WC) WILL DE RECOVERED 7) SALVAGE VALUE OF MACHINERY IS EXPECTED TO GENERATE 54,000 AFTER TAX 8) THE MACHINERY WILL HAVE DEPRECIATED UISNG THE STRAIGHT LINE METHOD OVER EACH OF THE 5 YEARS 9) DILLARD'S TAX RATE=40% AND ITS COST OF CAPITAL -9,6% A) EVALUATE THIS PROJECT OPPORTUNITY: PROJECT ACCEPTABLE: NPV > IRR > COST OF CAPITAL B) DILLARDS EXPECTS SALES REVENUE INCREASE TO = $15,000 / YR HOW LOW CAN REVENUE ACTUALLY GO AND THE PROJECT IS ACCEPTABLE ANSWER: SPREADSHEET: DETERMINATION OF COSTS AND ANNUAL CASH FLOWS: AFTER TAX NPV AND IRR NPV POSITIVE TELLS US LITTLE ABOUT THE NESTLE PROJECT'S UNCERTAINITY THE PROJECTS SALES, OPERATING COSTS, AND TERMINAL CASH ROWS ARE UNCERTAIN + ENHANCEMENT: WE CAN USE THEIR EXPECTED VALUES IN CALCULATING NPV USING MONTE CARLO MONTE CARLO SIMULATION ALLOWS US TO DIG DEEPER INTO THE UNCERTAINTY UNDERLYING OUR ASSUMPTIONS FUTURE SALES: MODEL WITH A NORMAL DISTRIBUTION: EXPECTATION = $15,000 WITH STDEV = 1000, 2000, 3000, 4000, 5000 FOR YEARS 1-5 THIS RECOGNIZES THAT FUTURE SALES BECOME MORE UNCERTAIN AS TIME FROM TODAY INCREASES FUTURE OPERATING EXPENSES: WE HAVE NO REASON FOR A CENTRAL TENDENACY. 10 THUS WE USE A UNIFORM DISTRIBUTION EXPECTATION - 75% OF SALES, WITH A MINIMUM = 70% AND A MAXIMUM -50% 11 EVALUATE THIS PROJECT OPPORTUNITY: PROJECT ACCEPTABLE: NPV >O 7 IRR > COST OF CAPITAL ? 12 15 ANSWER: 14 SPREADSHEET: DETERMINATION OF COSTS AND ANNUAL CASH FLOWS: AFTER TAX NPV AND IRR 15 16 12 18 10 20 21 22 24 25 36 27 SNEARE 30 11 32 23 34 15 DETERMINISTIC SOLUTION MONTE CARLO SOLUTION O Local backup on Xout Calibri - 11 Genera - AA AQE 15 Coy Format B/U Merge Center Wan Tell O. % *** Conto formatas Formatting Tbile Symbol Auto Fier Jil c THE DILLARDS CLOTHING CORPORATION (TICKER SYMBOL DD) IS CONSIDERING A PROPOSAL FOR AN INVESTMENT IN A NEW CLOTHING MANUFACTURE MACHINE THE PROJECT REQUIRES AN IMMEDIATE INVESTMENT (IN THOUSANDS) 1) MACHINERY COST - $8.000 2) COMMITMENT OF ADORO NETWORKING CAPITAL (NWC) - $2,000 3) DILLARDS EXPECTS THAT SALES WILL INCREASE BY $15,000 PER YEAR FOR 5 YEARS (1E, YEAR 1 - 515,000, YEAR 2- $15,000, NOT YEAR 2 $30,000) 4) AT THE END OF STH YEAR THE MACHINES WILL BE WORN OUT AND PROJECT WILL END 5) PRODUCTION OF NEW OUTPUT WILL REQUIRE OPERATING COST OF 754 OF SALES 6) AT THE END OF STH YEAR DILLARDS EXPECTS NETWORKING CAPITAL (NWC) WILL BE RECOVERED 7) SALVAGE VALUE OF MACHINERY IS EXPECTED TO GENERATE 54,000 AFTER TAX 8) THE MACHINERY WILL HAVE DEPRECIATED USNG THE STRAIGHT LINE METHOD OVER EACH OF THE 5 YEARS 9) DILLARD'S TAX RATE - 40% AND ITS COST OF CAPITAL - 9.6% A) EVALUATE THIS PROJECT OPPORTUNITY: PROJECT ACCEPTABLE NPV >07 ERR > COST OF CAPITAL B) DILLARDS EXPECTS SALES REVENUE INCREASE TO $35,000 / YR HOW LOW CAN REVENUE ACTUALLY GO AND THE PROJECT IS ACCEPTABLE ? 0 1 1 3 ANSWER: SPREADSHEET: DETERMINATION OF COSTS AND ANNUAL CASH FLOWS; AFTER TAX NPV AND IRR 20 22 24 23 DETERMINISTIC SOLUTION MONTE CARLO SOLUTION + Local backup on AutoSave A88 Q 2 CLASSE_DILLARDS_CORPORATION_NEW_MACHINE_CASH_FLOW_ANALYSIS_HOMEWORK (1) Data Review View Tell me Home Insert Draw Page Layout Formulas Share Comments 14 ch mert AA General Calibrihodil BT , D. Paste = = 1 $ % Caritional Format Cel Formangan Table Styles Delete Format Sort & Find & Fier Select Anal Det Product Deactivated on, most features of Excel will be disabled Reactiva C2 NPV POSITIVE TELLS US UTTLE ABOUT THE NESTLE PROJECTS UNCERTAINTY. THE PROJECTS SALES, OPERATING COSTS, AND TERMINAL CASH FLOWS ARE UNCERTAIN ENHANCEMENT: WE CAN USE THEIR EXPECTED VALUES IN CALCULATING NPV USING MONTE CARLO MONTE CARLO SIMULATION ALLOWS US TO DIG DEEPER INTO THE UNCERTAINTY UNDERLYING OUR ASSUMPTIONS FUTURE SALES: MOOEL WITH A NORMAL DISTRIBUTION EXPECTATION $15,000 WITH STDEV - 1000, 2000, 3000, 4000, 5000 IOR YEAIS 1-5 THIS RECOGNIZES THAT FUTURE SALES BECOME MORE UNCERTAIN AS TIME FROM TODAY INCREASES FUTURE OPERATING EXPENSES: WE HAVE NO REASON FOR A CENTRAL TENDENACY. THUS WE USE A UNIFORM DISTRIBUTION EXPECTATION - 75% OF SALES, WITH A MINIMUM-70% AND A MAXIMUM - 80% EVALUATE THIS PROJECT OPPORTUNITY: PROJECT ACCEPTABLE: NPV 07 IRR > COST OF CAPITAL 10 ANSWER: 14 SPREADSHEET: DETERMINATION OF COSTS AND ANNUAL CASH FLOWS: AFTER TAX NPV AND IRR 15 16 17 10 10 120 21 22 23 24 DETERMINETIC SOLUTION MONTE CARLO SOLUTION FI Q Share Come AutoSave ABD CLASS6_DILLARDS_CORPORATION_NEW_MACHINE_CASH FLOW_ANALYSIS_HOMEWORK (1) Home Insert Drew Page Layout Formulas Data Review View Tell me Calibrl (Body 11 WAA 3 General Delete Paste %) Conditional Format Cell Formatting Table Styles al Format Product Deactivated On,most features of Excel will be disabled ME 2:29. 0. Satt find The Select Andy Dia Reach THE DILLARDS CLOTHING CORPORATION MICKER SYMBOL DDS) IS CONSIDERING A PROPOSAL FOR AN INVESTMENT IN A NEW CLOTHING MANUFACTURE MACHINE THE PROJECT REQUIRES AN IMMEDIATE INVESTMENT (IN THOUSANDS 1) MACHINERY COST - $8,000 2) COMMITMENT OF ADDED NETWORKING CAPITAL INWO) - 52,000 3) DILLARDS EXPECTS THAT SALES WILL INCREASE BY $15,000 PER YEAR FOR S YEARS OLE.YEAR 1 $15,000, YEAR 2515,000... NOT YEAR 2- $30,000 4) AT THE END OF STH YEAR THE MACHINES WILL BE WORN OUT AND PROTECT WILL END S) PRODUCTION OF NEW OUTPUT WILL REQUIRE OPERATING COST OF PSN OF SALES G AT THE END OF STH YEAR DILLARDS DECTS NETWORKING CAPITAL INWC) WILL BE RECOVERED 7) SALVAGE VALUE OF MACHINERY IS EXPECTED TO GENERATE 54.000 AFTER TAX THE MACHINERY WILL HAVE DEPRECATED UISNG THE STRAIGHT LINE METHOD OVER EACH OF THE YEARS 9) DILLARD'S TAX RATE ON AND ITS COST OF CAPITAL 9.6% ALEVALUATE THIS PROJECT OPPORTUNITY PROJECT ACCEPTABLE: NPV O IRRCOST OF CAPITAL B) DILLARDS EXPECTS SALES REVENUE INCREASE TO - $15,000/YR HOW LOW CAN REVENUE ACTUALLY GO AND THE PROJECT IS ACCEPTABLE ? 14 15 ANSWER 16 SPREADSHEET. DETERMINATION OF COSTS AND ANNUAL CASH FLOWS: AFTER TAX NPV AND IRS 11 13 13 17 10 19 20 21 22 23