solution - FFM - Initial Investment Cost of the Equipment...

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Unformatted text preview: Initial Investment Cost of the Equipment 8,000,000.00 Less: after tax sale value of old machine 120,000.00 7,880,000.00 Depreciation Life of the equipment 10.00 years Salvage Value 1,500,000.00 Depreciation 650,000.00 Year- 1.00 2.00 3.00 4.00 Units Sold 250,000.00 500,000.00 500,000.00 500,000.00 Sales Revenue (7,880,000.00) 10,000,000.00 20,000,000.00 20,000,000.00 20,000,000.00 Less: Direct Production Cost- Material 3,750,000.00 7,500,000.00 7,500,000.00 7,500,000.00 - Labour Cost 2,500,000.00 5,000,000.00 5,000,000.00 5,000,000.00 Fixed Cost 500,000.00 500,000.00 500,000.00 500,000.00 Depreciation 650,000.00 650,000.00 650,000.00 650,000.00 Advertising Expenses 500,000.00 500,000.00 500,000.00 500,000.00 Working Capital 2,000,000.00 4,000,000.00 4,000,000.00 4,000,000.00 Operating Profit 100,000.00 1,850,000.00 1,850,000.00 1,850,000.00 Add: Salvage Value 100,000.00 1,850,000.00 1,850,000.00 1,850,000.00 Less: Tax (40%) 40,000.00 740,000.00 740,000.00 740,000.00 Net Profit 60,000.00 1,110,000.00 1,110,000.00 1,110,000.00 Add: Depreciation 650,000.00 650,000.00 650,000.00 650,000.00 Operating Cash Flow (7,880,000.00) 710,000.00 1,760,000.00 1,760,000.00 1,760,000.00 PVF @ 14% 1.0000 0.8772 0.7695 0.6750 0.5921 PV of OCF (7,880,000.00) 622,807.02 1,354,262.85 1,187,949.87 1,042,061.29 NPV (1,929,662.61) IRR 5.35% Payback Period 1 year Sensitivity Analysis Price Change +30% +20% +10% PAR -10% NPV 7,481,706.24 4,344,583.29 1,207,460.34 (1,929,662.61) (5,066,785.56) Material Price Change +30% +20% +10% PAR -10% NPV (6,341,241.76) (4,870,715.38) (3,400,188.99) (1,929,662.61) (459,136.23) Labour Cost Changes +30% +20% +10% PAR -10% NPV (4,870,715.38) (3,890,364.45) (2,910,013.53) (1,929,662.61) (949,311.69) The above sensitivity analysis indicate the change in the value of NPV with respect to changes in the sale price, it can be seen that price level changes are more stronger than the changes in the other variables like material an Year Earnings Investments Returns 1 120.00 84.00 42.00 2 120.00 60.00 21.00 3 120.00 48.00 9.60 4 120.00 30.00 4.80 5.00 6.00 500,000.00 300,000.00 20,000,000.00 12,000,000.00 7,500,000.00 4,500,000.00 5,000,000.00 3,000,000.00 500,000.00 500,000.00 650,000.00 650,000.00 500,000.00 500,000.00 4,000,000.00 2,400,000.00 1,850,000.00 450,000.00 1,500,000.00 1,850,000.00 1,950,000.00 740,000.00 780,000.00 1,110,000.00 1,170,000.00 650,000.00 650,000.00 1,760,000.00 1,820,000.00 0.5194 0.4556 914,088.85 829,167.52 -20% -30% (8,203,908.51) (11,341,031.46)-20% -30% 1,011,390.16 2,481,916.54 -20% -30% 31,039.23 1,011,390.16 , material price and the labour price. From the above analysis nd labour cost. NPV 336.00 305.45 150.00 123.97 48.00 36.06 18.00 218.18 552.00 683.67 300.00 983.67 Initial Investment Cost of the Equipment 8,000,000.00 Less: after tax sale value of old machine 120,000.00 7,880,000.00 Depreciation Life of the equipment 10.00 years Salvage Value 1,500,000.00 Depreciation 650,000.00 +10% change in price Year...
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This note was uploaded on 05/13/2010 for the course MECH 17657 taught by Professor Ravikant during the Spring '10 term at Indian Institute of Technology, Delhi.

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solution - FFM - Initial Investment Cost of the Equipment...

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