yr 51480000PVIF114 yr36370000PVIF115 yr

Yr 51480000pvif114 yr36370000pvif115 yr

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NPV = 18460000(PVIF11%,1 yr.)+37840000(PVIF11%,2yr)+33590000((PVIF11%,3 yr.) + 51480000(PVIF11%,4 yr.)+36370000(PVIF11%,5 yr.) +(14025000+10,886,400)(PVIF11%,6 yr.)-50747500 = 28931110+53733042+45312207+61429104+39570388+27229057.25-50747500 = 256204908-50747500 = $205,457,408 Conclusion: The initial cash outlay is the amount paid to start the project or the investment. The result is in the negative amount (-$50,747,500) because large initial capital investment is made by the organization for the purpose of generating
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the future positive cash flow in return. Net Present Value (NPV) is the difference of the total cash inflows and the total cash outflows of the project. The net cash flow is then discounted by the rate of cost of capital. This technique incorporates all the relevant future cash flow making it more viable in the investment appraisal tools. The NPV of the Sneakers project is $205,457,408 so we would accept the project. CALCULATION: Estimated sales volumes 2013 2014 2015 2016 2017 2018 Pairs sold (million) $1,200,000 $1,600,000 $1,400,000 $2,400,000 $1,800,000 $900,000 Each pair $190 $190 $190 $190 $190 $190 total sales $228,000,00 0 $304,000,00 0 $266,000,00 0 $456,000,00 0 $342,000,00 0 $171,000,00 0 Lost sales ($35,000,000 ) ($15,000,000 ) - - - - After lost sales/Revenue $193,000,00 0 $289,000,00 0 $266,000,00 0 $456,000,00 0 $342,000,00 0 $171,000,00 0 Gross Profit $77,200,000 $115,600,00 0 $106,400,00 0 $182,400,00 0 $136,800,00 0 $68,400,000 Gross Margin 40% 40% 40% 40% 40% 40% Variable cost = 55% of revenue Total cost = $106,150,00 0 $158,950,00 0 $146,300,00 0 $250,800,00 0 $188,100,00 0 $94,050,000
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Account Receivable = 8% of Revenue Account Receivable = $15,440,000 Account payable = 20% of Variable cost Total Account payable = $21,230,000 Inventory = 25% of Variable cost Total Inventory = $26,537,500 Net Working Capital = $20,747,500 Depreciation Expenses Year 2013 2014 2015 2016 2017 2018 Depreciation Percentage 20% 32% 19% 12% 11% 6% Equipment (At Cost) 20,000,000 $4,000,000 $6,400,000 $3,800,000 $2,400,000 $2,200,000 $1,200,000 Acc. Dep. $4,000,000 $10,400,000 $14,200,000 $16,600,000 $18,800,000 $20,000,000 Depreciation factory Year 2013 2014 2015 2016 2017 2018 Depreciation Percentage 2.60% 5% 4.70% 4.50% 4.30% 4% At Cost, 150,000,000 $3,900,000 $7,500,000 $7,050,000 $6,750,000 $6,450,000 $6,000,000 Acc. Dep. $3,900,000 $11,400,000 $18,450,000 $25,200,000 $31,650,000 $37,650,000
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