Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | |
Sales (8 million x 80% belonging to project) | -7200000 | 6400000 | 6400000 | 6400000 | 6400000 | 6400000 | 6400000 | 6400000 | 6400000 | 6400000 | 6400000 |
Variable Cost (30% of sales) | 0 | 1920000 | 1920000 | 1920000 | 1920000 | 1920000 | 1920000 | 1920000 | 1920000 | 1920000 | 1920000 |
Interest | 0 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 |
Manager salary | 0 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 |
Rent | 0 | 50000 | 50000 | 50000 | 50000 | 50000 | 50000 | 50000 | 50000 | 50000 | 50000 |
OH (allocated 20% of 500000) | 0 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 | 100000 |
Depreciation | 0 | 50000 | 50000 | 50000 | 50000 | 50000 | 50000 | 50000 | 50000 | 50000 | 50000 |
Cash inflow before tax | -7200000 | 4080000 | 4080000 | 4080000 | 4080000 | 4080000 | 4080000 | 4080000 | 4080000 | 4080000 | 4080000 |
Tax | 0 | 856800 | 856800 | 856800 | 856800 | 856800 | 856800 | 856800 | 856800 | 856800 | 856800 |
cash flow after tax + depreciation | -7200000 | 3273200 | 3273200 | 3273200 | 3273200 | 3273200 | 3273200 | 3273200 | 3273200 | 3273200 | 3273200 |
Working capital release | 2200000 | ||||||||||
Discount Rate | 1 | 0.909 | 0.826 | 0.751 | 0.683 | 0.621 | 0.564 | 0.513 | 0.466 | 0.424 | 0.385 |
Present Value | -7200000 | 2975338.8 | 2703663.2 | 2458173.2 | 2235595.6 | 2032657.2 | 1846084.8 | 1679151.6 | 1525311.2 | 1387836.8 | 2107182 |
NPV | 13750994.4 |
Initial Investment | |
Machinery | 5 Million |
WC | 2.2 million |
Total | 7.2 Million |
R&D - Sunk cost therefore not relevant for decision making | |
Working Capital | |
Inventory | 1.5 |
Receivables | 1 |
Cash | 0.5 |
Payables | -0.8 |
Total | 2.2 |
It may be noted that there are 2 schools of thought for including working capital in annual cash flows or including at initial outflow and release at the end of project period |
business finance practice questions You are financial managers of a company which makes printers. Currently you...
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