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A company with name XYZ starts a new project with life 4 years. The company will put 20.000.000 USD in the project. The estimated sales per year is 1200 units a)Selling price for first year is 45.000USD/unit b)Variable cost for first yaer is 35.000USD/unit c)Fixed cost for first year is 2.000.000 L d)Depreciation rates per year:20% , 32%,19.20%, 11.52% e)Net working capital requirements for the project are 20% of the projected annual sales at the beggining of each yea.r f) After first year, price of product, variable and fixed costs will increase with inflation glA the end of the 4 year-project, the equipment wil have 800.000 USD market value We also know the cost of capital which is 12% and the tax rate which is 35% Conduct a sensitivity analysis +-10% and +-20% to show the changes to the Net Present value to variation in selling price,variable cost per unit and number of units sold? Create the graphInflation rate is 4%

Tax rate is 355

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Answer #1
SELLING PRICE -- sensitivity
Base case
Year 0 1 2 3 4
Operating Cash flows:
No.of units sold 1200 1200 1200 1200
Selling Price/unit 45000 46800 48672 50618.88
1.Total sale value 54000000 56160000 58406400 60742656
Variable cost/unit -35000 -36400 -37856 -39370.24
2.Total Variable cost -42000000 -43680000 -45427200 -47244288
3.Fixed costs -2000000 -2080000 -2163200 -2249728
4.Depn.(20000000*20%;32%;19.2%;11.52%) -4000000 -6400000 -3840000 -2304000
EBT(1+2+3+4) 6000000 4000000 6976000 8944640
Tax at 35% -2100000 -1400000 -2441600 -3130624
EAT 3900000 2600000 4534400 5814016
Add Back:depn. 4000000 6400000 3840000 2304000
5.Operating Cash flow 7900000 9000000 8374400 8118016
CAPEX & NWC cash flows
6.Initial Investment -20000000
7.After-tax cash flow on sale 1729600
NWC (Beg.) 0 10800000 11232000 11681280 12148531
NWC (End) 10800000 11232000 11681280 12148531.2 0
8.Change in NWC -10800000 -432000 -449280 -467251 12148531
9.Net annual cash flow(5+6+7+8) -30800000 7468000 8550720 7907149 21996147
PV F at 12% 1 0.89286 0.79719 0.71178 0.63552
PV at 12% -30800000 6667857 6816582 5628152 13978949
Net Present Value 2291540
Base case +10% change in selling price
Year 0 1 2 3 4
Operating Cash flows:
No.of units sold 1200 1200 1200 1200
Selling Price/unit 49500 51480 53539.2 55680.768
1.Total sale value 59400000 61776000 64247040 66816922
Variable cost/unit -35000 -36400 -37856 -39370.24
2.Total Variable cost -42000000 -43680000 -45427200 -47244288
3.Fixed costs -2000000 -2080000 -2163200 -2249728
4.Depn.(20000000*20%;32%;19.2%;11.52%) -4000000 -6400000 -3840000 -2304000
EBT(1+2+3+4) 11400000 9616000 12816640 15018906
Tax at 35% -3990000 -3365600 -4485824 -5256617
EAT 7410000 6250400 8330816 9762288.6
Add Back:depn. 4000000 6400000 3840000 2304000
5.Operating Cash flow 11410000 12650400 12170816 12066289
CAPEX & NWC cash flows
6.Initial Investment -20000000
7.After-tax cash flow on sale 1729600
NWC (Beg.) 0 11880000 12355200 12849408 13363384
NWC (End) 11880000 12355200 12849408 13363384.3 0
8.Change in NWC -11880000 -475200 -494208 -513976 13363384
9.Net annual cash flow(5+6+7+8) -31880000 10934800 12156192 11656840 27159273
PV F at 12% 1 0.89286 0.79719 0.71178 0.63552
PV at 12% -31880000 9763214 9690842 8297108 17260209
Net Present Value 13131373
Base case -10% in selling price
Year 0 1 2 3 4
Operating Cash flows:
No.of units sold 1200 1200 1200 1200
Selling Price/unit 40500 42120 43804.8 45556.992
1.Total sale value 48600000 50544000 52565760 54668390
Variable cost/unit -35000 -36400 -37856 -39370.24
2.Total Variable cost -42000000 -43680000 -45427200 -47244288
3.Fixed costs -2000000 -2080000 -2163200 -2249728
4.Depn.(20000000*20%;32%;19.2%;11.52%) -4000000 -6400000 -3840000 -2304000
EBT(1+2+3+4) 600000 -1616000 1135360 2870374.4
Tax at 35% -210000 565600 -397376 -1004631
EAT 390000 -1050400 737984 1865743.4
Add Back:depn. 4000000 6400000 3840000 2304000
5.Operating Cash flow 4390000 5349600 4577984 4169743.4
CAPEX & NWC cash flows
6.Initial Investment -20000000
7.After-tax cash flow on sale 1729600
NWC (Beg.) 0 9720000 10108800 10513152 10933678
NWC (End) 9720000 10108800 10513152 10933678.1 0
8.Change in NWC -9720000 -388800 -404352 -420526 10933678
9.Net annual cash flow(5+6+7+8) -29720000 4001200 4945248 4157458 16833021
PV F at 12% 1 0.89286 0.79719 0.71178 0.63552
PV at 12% -29720000 3572500 3942321 2959196 10697689
Net Present Value -8548293
Base case +20% in selling price
Year 0 1 2 3 4
Operating Cash flows:
No.of units sold 1200 1200 1200 1200
Selling Price/unit 54000 56160 58406.4 60742.656
1.Total sale value 64800000 67392000 70087680 72891187
Variable cost/unit -35000 -36400 -37856 -39370.24
2.Total Variable cost -42000000 -43680000 -45427200 -47244288
3.Fixed costs -2000000 -2080000 -2163200 -2249728
4.Depn.(20000000*20%;32%;19.2%;11.52%) -4000000 -6400000 -3840000 -2304000
EBT(1+2+3+4) 16800000 15232000 18657280 21093171
Tax at 35% -5880000 -5331200 -6530048 -7382609.9
EAT 10920000 9900800 12127232 13710561
Add Back:depn. 4000000 6400000 3840000 2304000
5.Operating Cash flow 14920000 16300800 15967232 16014561
CAPEX & NWC cash flows
6.Initial Investment -20000000
7.After-tax cash flow on sale 1729600
NWC (Beg.) 0 12960000 13478400 14017536 14578237
NWC (End) 12960000 13478400 14017536 14578237.4 0
8.Change in NWC -12960000 -518400 -539136 -560701 14578237
9.Net annual cash flow(5+6+7+8) -32960000 14401600 15761664 15406531 32322399
PV F at 12% 1 0.89286 0.79719 0.71178 0.63552
PV at 12% -32960000 12858571 12565102 10966064 20541469
Net Present Value 23971206
Base case -20% in selling price
Year 0 1 2 3 4
Operating Cash flows:
No.of units sold 1200 1200 1200 1200
Selling Price/unit 36000 37440 38937.6 40495.104
1.Total sale value 43200000 44928000 46725120 48594125
Variable cost/unit -35000 -36400 -37856 -39370.24
2.Total Variable cost -42000000 -43680000 -45427200 -47244288
3.Fixed costs -2000000 -2080000 -2163200 -2249728
4.Depn.(20000000*20%;32%;19.2%;11.52%) -4000000 -6400000 -3840000 -2304000
EBT(1+2+3+4) -4800000 -7232000 -4705280 -3203891.2
Tax at 35% 1680000 2531200 1646848 1121361.9
EAT -3120000 -4700800 -3058432 -2082529.3
Add Back:depn. 4000000 6400000 3840000 2304000
5.Operating Cash flow 880000 1699200 781568 221470.72
CAPEX & NWC cash flows
6.Initial Investment -20000000
7.After-tax cash flow on sale 1729600
NWC (Beg.) 0 8640000 8985600 9345024 9718825
NWC (End) 8640000 8985600 9345024 9718824.96 0
8.Change in NWC -8640000 -345600 -359424 -373801 9718825
9.Net annual cash flow(5+6+7+8) -28640000 534400 1339776 407767 11669896
PV F at 12% 1 0.89286 0.79719 0.71178 0.63552
PV at 12% -28640000 477143 1068061 290241 7416429.7
Net Present Value -19388126
NPV
Base case -selling price 2291540
+10% selling price 13131373
   -10% selling price -8548293
   +20% selling price 23971206
   -20% selling price -19388126
VARIABLE COST ---Sensitivity
Base case
Year 0 1 2 3 4
Operating Cash flows:
No.of units sold 1200 1200 1200 1200
Selling Price/unit 45000 46800 48672 50618.88
1.Total sale value 54000000 56160000 58406400 60742656
Variable cost/unit -35000 -36400 -37856 -39370.24
2.Total Variable cost -42000000 -43680000 -45427200 -47244288
3.Fixed costs -2000000 -2080000 -2163200 -2249728
4.Depn.(20000000*20%;32%;19.2%;11.52%) -4000000 -6400000 -3840000 -2304000
EBT(1+2+3+4) 6000000 4000000 6976000 8944640
Tax at 35% -2100000 -1400000 -2441600 -3130624
EAT 3900000 2600000 4534400 5814016
Add Back:depn. 4000000 6400000 3840000 2304000
5.Operating Cash flow 7900000 9000000 8374400 8118016
CAPEX & NWC cash flows
6.Initial Investment -20000000
7.After-tax cash flow on sale 1729600
NWC (Beg.) 0 10800000 11232000 11681280 12148531.2
NWC (End) 10800000 11232000 11681280 12148531 0
8.Change in NWC -10800000 -432000 -449280 -467251 12148531.2
9.Net annual cash flow(5+6+7+8) -30800000 7468000 8550720 7907149 21996147.2
PV F at 12% 1 0.89286 0.79719 0.71178 0.63552
PV at 12% -30800000 6667857 6816582 5628152 13978949.2
Net Present Value 2291540
Base case +10% change in Variable cost
Year 0 1 2 3 4
Operating Cash flows:
No.of units sold 1200 1200 1200 1200
Selling Price/unit 45000 46800 48672 50618.88
1.Total sale value 54000000 56160000 58406400 60742656
Variable cost/unit -38500 -40040 -41641.6 -43307.264
2.Total Variable cost -46200000 -48048000 -49969920 -51968717
3.Fixed costs -2000000 -2080000 -2163200 -2249728
4.Depn.(20000000*20%;32%;19.2%;11.52%) -4000000 -6400000 -3840000 -2304000
EBT(1+2+3+4) 1800000 -368000 2433280 4220211.2
Tax at 35% -630000 128800 -851648 -1477073.9
EAT 1170000 -239200 1581632 2743137.28
Add Back:depn. 4000000 6400000 3840000 2304000
5.Operating Cash flow 5170000 6160800 5421632 5047137.28
CAPEX & NWC cash flows
6.Initial Investment -20000000
7.After-tax cash flow on sale 1729600
NWC (Beg.) 0 10800000 11232000 11681280 12148531.2
NWC (End) 10800000 11232000 11681280 12148531 0
8.Change in NWC -10800000 -432000 -449280 -467251 12148531.2
9.Net annual cash flow(5+6+7+8) -30800000 4738000 5711520 4954381 18925268.5
PV F at 12% 1 0.89286 0.79719 0.71178 0.63552
PV at 12% -30800000 4230357 4553189 3526430 12027350.3
Net Present Value -6462673
Base case -10% in Variable cost/unit
Year 0 1 2 3 4
Operating Cash flows:
No.of units sold 1200 1200 1200 1200
Selling Price/unit 45000 46800 48672 50618.88
1.Total sale value 54000000 56160000 58406400 60742656
Variable cost/unit -31500 -32760 -34070.4 -35433.216
2.Total Variable cost -37800000 -39312000 -40884480 -42519859
3.Fixed costs -2000000 -2080000 -2163200 -2249728
4.Depn.(20000000*20%;32%;19.2%;11.52%) -4000000 -6400000 -3840000 -2304000
EBT(1+2+3+4) 10200000 8368000 11518720 13669068.8
Tax at 35% -3570000 -2928800 -4031552 -4784174.1
EAT 6630000 5439200 7487168 8884894.72
Add Back:depn. 4000000 6400000 3840000 2304000
5.Operating Cash flow 10630000 11839200 11327168 11188894.7
CAPEX & NWC cash flows
6.Initial Investment -20000000
7.After-tax cash flow on sale 1729600
NWC (Beg.) 0 10800000 11232000 11681280 12148531.2
NWC (End) 10800000 11232000 11681280 12148531 0
8.Change in NWC -10800000 -432000 -449280 -467251 12148531.2
9.Net annual cash flow(5+6+7+8) -30800000 10198000 11389920 10859917 25067025.9
PV F at 12% 1 0.89286 0.79719 0.71178 0.63552
PV at 12% -30800000 9105357 9079974 7729874 15930548.1
Net Present Value 11045754
Base case +20% in V. C /unit
Year 0 1 2 3 4
Operating Cash flows:
No.of units sold 1200 1200 1200 1200
Selling Price/unit 45000 46800 48672 50618.88
1.Total sale value 54000000 56160000 58406400 60742656
Variable cost/unit -42000 -43680 -45427.2 -47244.288
2.Total Variable cost -50400000 -52416000 -54512640 -56693146
3.Fixed costs -2000000 -2080000 -2163200 -2249728
4.Depn.(20000000*20%;32%;19.2%;11.52%) -4000000 -6400000 -3840000 -2304000
EBT(1+2+3+4) -2400000 -4736000 -2109440 -504217.6
Tax at 35% 840000 1657600 738304 176476.16
EAT -1560000 -3078400 -1371136 -327741.44
Add Back:depn. 4000000 6400000 3840000 2304000
5.Operating Cash flow 2440000 3321600 2468864 1976258.56
CAPEX & NWC cash flows
6.Initial Investment -20000000
7.After-tax cash flow on sale 1729600
NWC (Beg.) 0 10800000 11232000 11681280 12148531.2
NWC (End) 10800000 11232000 11681280 12148531 0
8.Change in NWC -10800000 -432000 -449280 -467251 12148531.2
9.Net annual cash flow(5+6+7+8) -30800000 2008000 2872320 2001613 15854389.8
PV F at 12% 1 0.89286 0.79719 0.71178 0.63552
PV at 12% -30800000 1792857 2289796 1424708 10075751.3
Net Present Value -15216887
Base case -20% in V.C./unit
Year 0 1 2 3 4
Operating Cash flows:
No.of units sold 1200 1200 1200 1200
Selling Price/unit 45000 46800 48672 50618.88
1.Total sale value 54000000 56160000 58406400 60742656
Variable cost/unit -28000 -29120 -30284.8 -31496.192
2.Total Variable cost -33600000 -34944000 -36341760 -37795430
3.Fixed costs -2000000 -2080000 -2163200 -2249728
4.Depn.(20000000*20%;32%;19.2%;11.52%) -4000000 -6400000 -3840000 -2304000
EBT(1+2+3+4) 14400000 12736000 16061440 18393497.6
Tax at 35% -5040000 -4457600 -5621504 -6437724.2
EAT 9360000 8278400 10439936 11955773.4
Add Back:depn. 4000000 6400000 3840000 2304000
5.Operating Cash flow 13360000 14678400 14279936 14259773.4
CAPEX & NWC cash flows
6.Initial Investment -20000000
7.After-tax cash flow on sale 1729600
NWC (Beg.) 0 10800000 11232000 11681280 12148531.2
NWC (End) 10800000 11232000 11681280 12148531 0
8.Change in NWC -10800000 -432000 -449280 -467251 12148531.2
9.Net annual cash flow(5+6+7+8) -30800000 12928000 14229120 13812685 28137904.6
PV F at 12% 1 0.89286 0.79719 0.71178 0.63552
PV at 12% -30800000 11542857 11343367 9831596 17882147.1
Net Present Value 19799968
NPV
Base case -Variable cost 2291540
+10% V.C. -6462673
   -10% V.C 11045754
   +20% V.C -15216887
   -20% V.C 19799968
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