Question

Question 2 Refer to the same Exhibit 1 in the previous question I have pasted it below for ease of aocess. Your boss would like to see sensitivit analysis. He expenditures could also be 10% higher in 2020. Conduct sensitivity analysis for 2020 ONLLY, You only need to calculate the FCF (s) for 2020, You do not need to find the NPV. 15 points) afraid operating profit could be 10% lower in 2020. Capital. Exhibit I 2022 2021 2020 22,721 Revense 21,435 20.222 14,769 Production Costs 13,933 13144 462 Depreciation 436 310 15.231 14.369 Total Production Costs Selling, General & Administrative 13,454 4,287 18,656 4,544 4,044 19,775 17,498 Total Operating Expenses 2,946 2,724 2.779 Operating Profit 782 743 650 Cash 1197 1130 1065 Accounts receivable 1796 1598 1694 Accounts payable NWC Change in NWC 875 826 1,500 Capital Expenditures Question 1 Review Exhibit 1 below. Assume an initial outlay of S2,000, Also, assume that the terminal cash flow is zero. Calculate the FCFS for 2020 to 2022. Assuming no working capital in 2019, calculate the NPV for the project assuming a WACC of 8 percent and a tax rate of 21% . Should the company pursue the project? Why or why not? 110 poinls Exhibit 1 2022 2021 2020 Revenue 21,435 22,721 20,222 Production Costs 13,933 14,769 13144 Depreciation 462 436 310 Total Production Cests Selling, General & Admiaistrativer 14,369 15,231 13.454 4,287 4,544 4.044 Tetal Operating Expenses 17,498 18,656 19,775 2946 Operating Prefit 2,779 2,724 782 Cash 650 743 1197 1130 Accounts receivable 1065 1796 Accounts payable 1598 1694 NWC Change in NWc 875 1,500 826 Capital Expenditures

Answer 1

Yes the company should pursue the project given the positive NPV of $1793 from the project

Mon 17 Jun 20:21 61% Вook Home Draw Formulas Data Review View Insert АВС 123 Calibri (Body) U 11 fx A B C G H Ques2. 1 FCF for 2020 assuming no working capital in 2019 2020 Change in WC 2021 2022 2 Income from operations Cash 650 2724 743 782 3 Add depreciation A/C receivable 310 1065 1130 1197 4 Less A/C payable Less change WC -117 -1598 -1694 -1796 5 Less CAPEX 1500 Total WC 117 179 183 6 FCF from 2020 1417 Change in WC 117 62 4 7 8 Assuming no WC in 2019 Ques1 Particulars 2020 2021 2022 10 EBIT/ operating profit 2724 2779 2946 11 Less 21% tax -572.04 -583.59 -618.66 12 Add depreciation 462 310 436 13 14 Less CAPEX -1500 -826 -875 15 Less change in WC -117 -62 -4 FCF 844,96 1743.41 1910.34 16 PV @8% 0.926 0.857 0.794 17 Present values 782,433 1494.1 1516.81 18 Total cash flow from 3 yrs 3793.35 19 20 Calculation of NPV @8% 21 Total cash Terminal value Initial outlay Add flows Less 22 0 Add 2000 23 3793.35 Less 1793.35 NPV IS 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 4о + Sheet1 Sheet2