Detroit | 0 | 1 | 2 | 3 | 4 | 5 |
Investment | -$5,000,000 | |||||
NWC | -$480,000 | $480,000 | ||||
Salvage | $575,000 | |||||
Sales | $8,964,000 | $8,964,000 | $8,964,000 | $8,964,000 | $8,964,000 | |
VC | -$6,075,000 | -$6,075,000 | -$6,075,000 | -$6,075,000 | -$6,075,000 | |
FC | -$1,200,000 | -$1,200,000 | -$1,200,000 | -$1,200,000 | -$1,200,000 | |
Depreciation | -$1,000,000 | -$1,000,000 | -$1,000,000 | -$1,000,000 | -$1,000,000 | |
EBT | $689,000 | $689,000 | $689,000 | $689,000 | $689,000 | |
Tax (22%) | -$151,580 | -$151,580 | -$151,580 | -$151,580 | -$151,580 | |
Net Income | $537,420 | $537,420 | $537,420 | $537,420 | $537,420 | |
Cash Flows | -$5,480,000 | $1,537,420 | $1,537,420 | $1,537,420 | $1,537,420 | $2,465,920 |
NPV | $753,165.55 |
OCF = Net Income + Depreciation
Cash Flows = OCF + Investment + NWC + Salvage x (1 - tax rate)
NPV can be calculated using the same function in excel with 11% discount rate.
b) Worst-case NPV values, Investment = 5,500,000, NWC = 504,000, Salvage = 517,500, Price = 282.2
Detroit | 0 | 1 | 2 | 3 | 4 | 5 |
Investment | -$5,500,000 | |||||
NWC | -$504,000 | $504,000 | ||||
Salvage | $517,500 | |||||
Sales | $7,619,400 | $7,619,400 | $7,619,400 | $7,619,400 | $7,619,400 | |
VC | -$6,075,000 | -$6,075,000 | -$6,075,000 | -$6,075,000 | -$6,075,000 | |
FC | -$1,200,000 | -$1,200,000 | -$1,200,000 | -$1,200,000 | -$1,200,000 | |
Depreciation | -$1,100,000 | -$1,100,000 | -$1,100,000 | -$1,100,000 | -$1,100,000 | |
EBT | -$755,600 | -$755,600 | -$755,600 | -$755,600 | -$755,600 | |
Tax (22%) | $166,232 | $166,232 | $166,232 | $166,232 | $166,232 | |
Net Income | -$589,368 | -$589,368 | -$589,368 | -$589,368 | -$589,368 | |
Cash Flows | -$6,004,000 | $510,632 | $510,632 | $510,632 | $510,632 | $1,418,282 |
NPV | -$3,578,110.62 |
Best-case NPV value, Investment = 4,500,000, NWC = 456,000, Salvage = 632,500, Price = 381.8
Detroit | 0 | 1 | 2 | 3 | 4 | 5 |
Investment | -$4,500,000 | |||||
NWC | -$456,000 | $456,000 | ||||
Salvage | $632,500 | |||||
Sales | $10,308,600 | $10,308,600 | $10,308,600 | $10,308,600 | $10,308,600 | |
VC | -$6,075,000 | -$6,075,000 | -$6,075,000 | -$6,075,000 | -$6,075,000 | |
FC | -$1,200,000 | -$1,200,000 | -$1,200,000 | -$1,200,000 | -$1,200,000 | |
Depreciation | -$900,000 | -$900,000 | -$900,000 | -$900,000 | -$900,000 | |
EBT | $2,133,600 | $2,133,600 | $2,133,600 | $2,133,600 | $2,133,600 | |
Tax (22%) | -$469,392 | -$469,392 | -$469,392 | -$469,392 | -$469,392 | |
Net Income | $1,664,208 | $1,664,208 | $1,664,208 | $1,664,208 | $1,664,208 | |
Cash Flows | -$4,956,000 | $2,564,208 | $2,564,208 | $2,564,208 | $2,564,208 | $3,513,558 |
NPV | $5,084,441.72 |
20 points Consider a project to supply Detroit with 27,000 tons of machine screws annually for...
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