COST REDUCING PROJECT
Basics
(in thousands of $)
Year 0
Year 1
Key Assumptions
Inflation Rate
Real Cost of Capital
Real Growth Rate
Tax Rate
Year 2
Year 4
Year 5
38.0%
2.8%
9.3%
16.0%
38.0%
2.5%
9.1%
THREE VALUATION METHODS
Inputs
Initial Outlay for New Investment
Tax Rate
Unlevered Cost of Capital
Riskfree Rate
Adjusted Present Value (APV)
(A.) NPV of Unlevered Investment
Date
Before - tax Cash F
Single Cash Flow Present Value
Inputs
Single Cash Flow
Discount Rate / Period
Number of Periods
$1,000.00
6%
5
Present Value Using A Time Line
Period
Cash Flows
Present Value of Each Cash Flow
Present
Loan Amortization
Basics
Inputs
Present Value
Interes rate / year
Number of years
$300,000
8.00%
30
Outputs
Year
Beg. Principal Balance
Payment
Interest Component
Principal Component
1
2
3
4
5
6
7
8
9
PROJECT NPV
(in thousands of $)
BASICS
Year 0
Year 1
Key Assumptions
Unit Sales
Inflation Rate
Real Cost of Capital
Tax Rate
Discounting
Discount Rate = Cost of Capital
Cumulative Discount factor
Year
Bond Valuation
Inputs
Number of Periods to Maturity(N)
Face Value(M)
Discount Rate / Period(DR)
Coupon Payment(INT)
Annual Payments
8
$1,000
9.0%
$25
Calculate Bond Price using the Cash Flows
Period
C
Net Present Value
Constant Discount Rate
(in thousands of $)
Inputs
Discount Rate
Period
Current Investment
Future Cash Flows
Net Present Value Using A Time Line
Period
Cash Flows
Present Value of Eac