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Would you invest in this company? (given the figures below) Why or why not? Base Case 1)Cash flows from fixed assets Year 0 1 2
Would you invest in this company? (given the figures below) Why or why not?
Base Case | |||||||||
1)Cash flows from fixed assets | |||||||||
Year 0 | 1 | 2 | 3 | 4 | 5 | ||||
Equipment Cost | -2E+06 | ||||||||
Equipment Set-up cost | -300000 | ||||||||
Equipment Salvage Value | 600000 | ||||||||
Cash flow from assets | -2E+06 | 0 | 0 | 0 | 0 | 600000 | |||
2)Cash flows from changes to operating capital | |||||||||
NOWC 10%*Sales Value | -250000 | -270375 | -292411 | -316242 | -342016 | ||||
3) Cash flows from operations | Year 0 | 1 | 2 | 3 | 4 | 5 | |||
Unit Sales/Year | 25000 | 26250 | 27563 | 28941 | 30388 | ||||
Projected price/Year | 100 | 103 | 106 | 109 | 113 | ||||
Projected Total sales value---1 | 2500000 | 2703750 | 2924106 | 3162420 | 3420157 | ||||
Less: Variable cost/unit | 60 | 63 | 66.15 | 69.458 | 72.93 | ||||
Total Variable cost ---------2 | -2E+06 | -2E+06 | -2E+06 | -2E+06 | -2E+06 | ||||
Less: Fixed cost-------------3 | -500000 | -530000 | -561800 | -595508 | -631238 | ||||
Less: MACRS Depn.---------4 | -328670 | -563270 | -402270 | -287270 | -205390 | -205160 | -205390 | -102580 | |
EBIT --------1+2+3+4 | 171330 | -43270 | 136776 | 269499 | 367346 | ||||
Tax at 35% *EBIT | -59966 | 0 | -47872 | -94325 | -128571 | ||||
EAT | 111365 | -43270 | 88905 | 175174 | 238775 | ||||
Add Back Depreciation | 328670 | 563270 | 402270 | 287270 | 205390 | ||||
Operating cash flow | 440035 | 520000 | 491175 | 462444 | 444165 | ||||
Base Case NPV | |||||||||
Year 0 | 1 | 2 | 3 | 4 | 5 | ||||
Cash flow from assets | -2E+06 | 0 | 0 | 0 | 0 | ||||
After tax salvage600000*(1-35%) | 390000 | ||||||||
NOWC 10%*Sales Value | -250000 | -270375 | -292411 | -316242 | -342016 | ||||
Recovery of NOWC | 1471043 | ||||||||
Operating cash flow | 440035 | 520000 | 491175 | 462444 | 444165 | ||||
Net annual cash flows | -2E+06 | 190035 | 249625 | 198764 | 146202 | 1963192 | |||
PV F at WACC 10% | 1 | 0.90909 | 0.82645 | 0.75131 | 0.68301 | 0.62092 | |||
PV at WACC at 10% | -2E+06 | 172759 | 206302 | 149334 | 99858 | 1218988 | |||
NPV (Base Case) | -452759 | ||||||||
WORST Case Scenario | |||||||||
2)Cash flows from changes to operating capital | |||||||||
NOWC 10%*Sales Value | -250000 | -252500 | -255025 | -257575 | -260151 | ||||
3) Cash flows from operations | Year 0 | 1 | 2 | 3 | 4 | 5 | |||
Unit Sales/Year | 25000 | 25000 | 25000 | 25000 | 25000 | ||||
Projected price/Year | 100 | 101 | 102 | 103 | 104 | ||||
Projected Total sales value---1 | 2500000 | 2525000 | 2550250 | 2575753 | 2601510 | ||||
Less: Variable cost/unit | 60 | 63 | 66.15 | 69.458 | 72.93 | ||||
Total Variable cost ---------2 | -2E+06 | -2E+06 | -2E+06 | -2E+06 | -2E+06 | ||||
Less: Fixed cost-------------3 | -500000 | -530000 | -561800 | -595508 | -631238 | ||||
Less: MACRS Depn.---------4 | -328670 | -563270 | -402270 | -287270 | -205390 | ||||
EBIT --------1+2+3+4 | 171330 | -143270 | -67570 | -43463 | -58378 | ||||
Tax at 35% *EBIT | -59966 | 0 | 0 | 0 | 0 | ||||
EAT | 111365 | -143270 | -67570 | -43463 | -58378 | ||||
Add Back Depreciation | 328670 | 563270 | 402270 | 287270 | 205390 | ||||
Operating cash flow | 440035 | 420000 | 334700 | 243807 | 147012 | ||||
Worst Case NPV | |||||||||
Year 0 | 1 | 2 | 3 | 4 | 5 | ||||
Cash flow from assets | -2E+06 | 0 | 0 | 0 | 0 | ||||
After tax salvage600000*(1-35%) | 390000 | ||||||||
NOWC 10%*Sales Value | -250000 | -252500 | -255025 | -257575 | -260151 | ||||
Recovery of NOWC | 1275251 | ||||||||
Operating cash flow | 440035 | 420000 | 334700 | 243807 | 147012 | ||||
Net annual cash flows | -2E+06 | 190035 | 167500 | 79675 | -13768 | 1552112 | |||
PV F at WACC 10% | 1 | 0.90909 | 0.82645 | 0.75131 | 0.68301 | 0.62092 | |||
PV at WACC at 10% | -2E+06 | 172759 | 138430 | 59861 | -9404 | 963740 | |||
NPV (Worst Case) | -974615 | ||||||||
BEST Case Scenario | |||||||||
2)Cash flows from changes to operating capital | |||||||||
NOWC 10%*Sales Value | -250000 | -315000 | -396900 | -500094 | -630118 | ||||
3) Cash flows from operations | Year 0 | 1 | 2 | 3 | 4 | 5 | |||
Unit Sales/Year | 25000 | 30000 | 36000 | 43200 | 51840 | ||||
Projected price/Year | 100 | 105 | 110.25 | 115.76 | 121.55 | ||||
Projected Total sales value---1 | 2500000 | 3150000 | 3969000 | 5000940 | 6301184 | ||||
Less: Variable cost/unit | 60 | 63 | 66.15 | 69.458 | 72.93 | ||||
Total Variable cost ---------2 | -2E+06 | -2E+06 | -2E+06 | -3E+06 | -4E+06 | ||||
Less: Fixed cost-------------3 | -500000 | -530000 | -561800 | -595508 | -631238 | ||||
Less: MACRS Depn.---------4 | -328670 | -563270 | -402270 | -287270 | -205390 | ||||
EBIT --------1+2+3+4 | 171330 | 166730 | 623530 | 1117598 | 1683845 | ||||
Tax at 35% *EBIT | -59966 | -58356 | -218236 | -391159 | -589346 | ||||
EAT | 111365 | 108375 | 405295 | 726439 | 1094499 | ||||
Add Back Depreciation | 328670 | 563270 | 402270 | 287270 | 205390 | ||||
Operating cash flow | 440035 | 671645 | 807565 | 1013709 | 1299889 | ||||
Best Case NPV | |||||||||
Year 0 | 1 | 2 | 3 | 4 | 5 | ||||
Cash flow from assets | -2E+06 | 0 | 0 | 0 | 0 | ||||
After tax salvage600000*(1-35%) | 390000 | ||||||||
NOWC 10%*Sales Value | -250000 | -315000 | -396900 | -500094 | -630118 | ||||
Recovery of NOWC | 2092112 | ||||||||
Operating cash flow | 440035 | 671645 | 807565 | 1013709 | 1299889 | ||||
Net annual cash flows | -2E+06 | 190035 | 356645 | 410665 | 513615 | 3151883 | |||
PV F at WACC 10% | 1 | 0.90909 | 0.82645 | 0.75131 | 0.68301 | 0.62092 | |||
PV at WACC at 10% | -2E+06 | 172759 | 294748 | 308538 | 350806 | 1957072 | |||
NPV (Best Case) | 783922 | ||||||||
PV of depn. Tax shield lost | Net NPV | Prob. | |||||||
NPV (Base Case) | -452759 | 269059 | -721819 | 50% | -360909 | ||||
NPV (Worst Case) | -974615 | 269059 | -1E+06 | 25% | -310919 | ||||
NPV (Best Case) | 783922 | 269059 | 514863 | 25% | 128716 | ||||
Net Present Value | -543112 | ||||||||
Note: | |||||||||
PV of Depn. Tax -shield lost= | |||||||||
(205160/1.1^6)+(205390/1.1^7)+(102580/1.1^8) | |||||||||
269059 |
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