2
over 5 years, so depreciation = 300. Salvage value = 0.
ii. Revenues in years 1–5 of $6,000 derived from a market size
of 10000 units, market share of 30% and price of $2, variable
costs of $3,000 ($1 per unit) and annual fixed costs of $1,791.
iii. Corporate tax rate of 34%, appropriate discount rate of 15%.
• Annual taxable income = 6000–4791–300 = 909, so taxes = 309.
• Annual cash flow is -1500, 900, 900, 900, 900, 900 yielding:
(1)
• Table 1 shows how sensitive the
NPV
is to
separate
1% varia-
tions in
each
of the forecasts underlying this analysis:
Table 1: Sensitivity analysis
a
a.Calculations underlying this table were done in an Excel spreadsheet which is available on the web site.
Variable
NPV-
change %
NPV +
change %
Market Size
$1,450.37
-4.38%
$1,583.11
4.38%
Market Share
$1,450.37
-4.38%
$1,583.11
4.38%
Price
$1,383.99
-8.75%
$1,649.48
8.75%
Variable Cost
$1,583.11
4.38%
$1,450.37
-4.38%
Fixed Cost
$1,556.36
2.61%
$1,477.11
-2.61%
Investment
$1,528.32
0.76%
$1,505.16
-0.76%
Discount Rate
$1,527.48
0.71%
$1,506.06
-0.70%
NPV
1500
–
900
1.15
t
-----------
t
1
=
5
∑
+
1516.94
==