Cash flow
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A. EBIT 100000 GROWTH OF EBIT 5% Every year Initial investment CAPEX 400000 Depriciation SLM 80000 NWC 20% change in EBIT Tax rate 30% Discount rate 20% 0 1 EBIT 0 100000 EBIT(1-T) 0 70000 DA 0 80000 Less CAPEX 400000 Additional NWC 20000 1000 PFCF -420000 149000 NPV INR 53,569.04 B. From part A. EBIT 100000 GROWTH OF EBIT 5% Every year Initial investment CAPEX 400000 Depriciation SLM 80000 NWC 20% change in EBIT Tax rate 30% Discount rate 0.25 Interest expense 10% 0 1 EBIT 0 100000 EBIT(1-T) 0 70000 DA 0 80000 Less CAPEX 400000 Additional NWC 20000 1000 PFCF -420000 149000 EFCF=PFCF-I(1-T)-P+NP Debt borrowing 120000 Interest expense 0 12000 I(1-T) 0 8400 Principal repayment 0 15000 EFCF -540000 125600
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Cash flow
Transcript of Cash flow
A.EBIT 100000GROWTH OF EBIT 5% Every yearInitial investment CAPEX 400000Depriciation SLM 80000NWC 20% change in EBITTax rate 30%Discount rate 20%
0 1EBIT 0 100000EBIT(1-T) 0 70000DA 0 80000Less CAPEX 400000Additional NWC 20000 1000PFCF -420000 149000
NPV INR 53,569.04
B. From part A. EBIT 100000GROWTH OF EBIT 5% Every yearInitial investment CAPEX 400000Depriciation SLM 80000NWC 20% change in EBITTax rate 30%Discount rate 0.25Interest expense 10%
0 1EBIT 0 100000EBIT(1-T) 0 70000DA 0 80000Less CAPEX 400000Additional NWC 20000 1000PFCF -420000 149000
EFCF=PFCF-I(1-T)-P+NPDebt borrowing 120000Interest expense 0 12000I(1-T) 0 8400Principal repayment 0 15000EFCF -540000 125600
NPV ($174,291.94)
2 3 4 5105000 110250 115762.5 121550.6 0
73500 77175 81033.75 85085.4480000 80000 80000 80000
1050 1102.5 1157.625 -24310.13152450 156073 159876 189396
2 3 4 5105000 110250 115762.5 121550.6 Total debt
73500 77175 81033.75 85085.44 Principal repaid80000 80000 80000 80000 interest expense
1050 1102.5 1157.625 -24310.13152450 156073 159876 189396
EFCF=PFCF-I(1-T)-P+NP
10500 9000 7500 60007350 6300 5250 4200
15000 15000 15000 15000130100 134773 139626 170196
0 1 2 3 4 5120000 105000 90000 75000 60000 45000
15000 15000 15000 15000 1500012000 10500 9000 7500 6000
Capex 12.5PFCF 2 IN FIRST YEARLife 5 yearsRate of return 18%Rate for 2-5 43%
0 1 2 3 4PFCF 12.5 2 2.36 4.074964 5.816621
NPV ($0.00)
The required rate is 43% from year 2-5 for the firm to breakeven
58.302668
The required rate is 43% from year 2-5 for the firm to breakeven
P/unitCost/unitUnit sales per month
Disc rate
Revenue from current policy33000
Incremental revenuePv value of incremental revenueswitching costs credit sales of all the unitsIncremental variable cost for current productionSale of extra units for new price
NPV
Recommend the net 45 days policy
Current policy New Policy250 300220 240
1100 1150
0.99%
Revenue from New policy69000
360003636363.6364
2750002200012000
3090003327363.63636
Discount rate 7%
Current Machine 0Cash flows 0Resale value 8Net cash flow from current machine 8
machine A 0Cash flows -14NPV 9.9393038738
machine B 0Cash flows -10NPV 9.7415111143
It is recommended to sell the current machine in the first year and replace it with machine A as the net value of the firm is maximized
1 24 47 0
11 4
1 2 3 48 8 6 6
1 2 38 7.5 7
It is recommended to sell the current machine in the first year and replace it with machine A as the net value of the firm is maximized
Decision MakingSale at year 0 Sale at year 1
current machine 8 11Machine A NPV 9.9393038738 9.9393038738Net cash if replaced by A in respective years 17.9393038738 20.939303874
current machine 8 11Machine B NPV 9.7415111143 9.7415111143Net cash if replaced by Bin respective years 17.7415111143 20.7415111143
It is recommended to sell the current machine in the first year and replace it with machine A as the net value of the firm is maximized
Decision MakingSale at year 2
49.9393038738
13.9393038738
49.7415111143
13.7415111143
Units 120price per unit 300000CAPEX 200000000Discount rate 20%
0 1 2Capex 200000000Cashflows 36000000 36000000Net -200000000 36000000 36000000
NPV ($92,337,962.96)
revised units 200 units from year 20 1 2
Net CF 6000000041666666.667
After tax salvage value 50000000
Revised NPV
PV of expansion 149530606.995885PV of abandonment 41666666.6666667PV of 1s year CF 30000000NPV -63614969.1358 Value of the real option
Since the NPV is negetive, The real option is the OPTION TO ABANDON.
PV = 149530607Psuccess = 0.6
T = 1T = 0
Expand production
PV = 416666671-Psuccess = 0.4Salvage
3 4 5
36000000 36000000 3600000036000000 36000000 36000000
3 4 5 660000000 6E+007 6E+007 6E+007
34722222.22 28935185 24112654 20093879 149530607
Since the NPV is negetive, The real option is the OPTION TO ABANDON.
PV = 149530607
PV = 41666667
