FIN650_Projected Valuationa and Risk Analysis (4)_C.Morant.docx

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RUNNING HEAD: PROJECT VALUATION AND RISK ANALYSIS 1 Project Valuation and Risk Analysis Clurttie Morant October 26, 2016 FIN-650 Professor Randy Baker
Project Valuation and Risk Analysis 2 Per to Brigham & Ehrhardt (2014), “refers to the uncertainty of forecasted future cash flows streams, variance of portfolio/stock returns, statistical analysis to determine the probability of a project's success or failure, and possible future economic states”. “Analysis of New Expansion Project” “NPV” = $46,961 “Input” “Equipment cost” $250,000 “Shipping charge” $20,000 “Installation charge” $30,000 “Economic Life” 4 “Salvage Value” $25,000 “Tax Rate” 40% “Cost of Capital” 12% “Units Sold” 1,350 “Sales Price Per Unit” $200 “Incremental Cost Per Unit” $100 “NWC/Sales” 15% “Inflation rate” 3% “Depreciable Basis = Equipment + Freight + Installation Depreciable Basis = $300,000 Year % x Basis = Depr. Remaining Book Value” One 0.33 $300,000 $99,000 $201,000 Two 0.45 300,000 135,000 66,000
Project Valuation and Risk Analysis 3 Three 0.15 300,000 45,000 21,000 Four 0.07 300,000 21,000 0 “Annual Sales Revenues” and Cost: Year One Year Two Year Three Year Four “Units” 1,350 1,350 1,350 1,350 “Unit price” $200.00 $206.00 $212.18 $218.55 “Unit cost” $100.00 $103.00 $106.09 $109.27 “Sales” $270,000 $278,100 $286,443 $295,036 “Costs” 135,000 139,050 143,222 147,518 “Annual Operating Cash Flows”: Year One Year Two Year Three Year Four “Units” 1,350 1,350 1,350 1,350 “Unit price” $200.00 $206.00 $212.18 $218.55 “Unit cost” $100.00 $103.00 $106.09 $109.27
Project Valuation and Risk Analysis 4 “Sales” $270,000 $278,100 $286,443 $295,036 “Costs” 135,000 139,050 143,222 147,518 “Depreciation” 99,000 135,000 45,000 21,000

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