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%
13.0%
38.0%
2.2%
9.0%
9.0%
38.0%
2.0%
8.9%
7.0%
38.0%
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 Flows
Taxes
After - tax Cash Flow
PV of Future Cash Flow
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 Value
0
$0.00
$0.00
$747.26
Present Value Using the Fo
Stock Valuation
Inputs
Inflation Rate
Real Discount Rate ( Real k)
Earnings Retention Rate
Outputs
Nominal Discount Rate (k)
Period
Inflation Rate
Real Return on Investment (Real ROI)
Nominal Return on Investment (ROI)
Real Growth Rate in Dividend (Real g
PROJECT NPV
(in thousands of $)
BASICS
Year 0
Year 1
Key Assumptions
Unit Sales
Inflation Rate
Real Cost of Capital
Tax Rate
Discounting
Discount Rate = Cost of Capital
Cumulative Discount factor
Year 3
Year 4
Year 5
Year 6
Year 7
2000
2.0%
11.0%
35.0%
($
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
Cash Flows
Present Value of Cash Flow
Bond Price
$640.24
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 Each Cash Flow
Net Present Value Using A Time Line
Net Pre
Stock Valuation
Inputs
Inflation Rate
Real Discount Rate ( Real k)
Earnings Retention Rate
Outputs
Nominal Discount Rate (k)
Period
Inflation Rate
Real Return on Investment (Real ROI)
Nominal Return on Investment (ROI)
Real Growth Rate in Dividend (Real g