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-1Initial Outlay equipment 700,000 Depreciation (Strait line method) 140,000 Sales 8 million Increase in second and third year 50% Fourth year sales...

I want to calculate senstivity analysis table for this question
- 1 - Initial Outlay equipment 700,000 Depreciation (Strait line method) 140,000 Sales 8 million Increase in second and third year 50% Fourth year sales ½ of peak annual sales Fifth year ¼ of peak annual sales Cost of sales 65% of sales revenue Administration cost 25% of sales revenue Rate of tax 30% Fixed rent every year 26,000 Working capital requirement 30 cent of following year Introductory tax deductible expenditure $300,000 Developing and test marketing the new product $1.75 million (sunk cost) Weighted average cost of capital 14% 0 1 2 3 4 5 initial outlay -700000 depreciation -140000 Revenue 800000 0 1200000 0 1200000 0 600000 0 3000000 Less:-cost 520000 0 7800000 7800000 390000 0 1950000 administration cost 200000 0 3000000 3000000 150000 0 750000 Fixed cost Depreciation 140000 140000 140000 140000 140000 Rent 26000 26000 26000 26000 26000 Tax deductible expense 300000 766600 0 1096600 0 1096600 0 556600 0 2866000 Operating income before tax 334000 1034000 1034000 434000 134000 Tax 30% of net income 100200 310200 310200 130200 40200 Operating income after tax 233800 723800 723800 303800 93800 Add back depreciation FCF 373800 863800 863800 443800 233800 Working capital requirement 2400000 360000 0 3600000 1800000 900000 0 cash flow due to investment in NOWC -2400000 - 120000 0 0 Net cash flow(time line cash flows -3100000 -826200 863800 863800 443800 233800 Appraisal of the proposed project (WACC=14%) Net present value - $2,192,836.77 IRR .1566 or - 15.66%
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- 2 - Projecting the net cash flows to know the net present value –NPV for the new project Year 0 1 2 3 4 5 Net cash flows -3100000 -826200 863800 863800 443800 233800 Now NPV = CF t + CF 1 + CF 2 + CF 3 + CF 4 + CF 5 (1+r) 1 (1+r) 2 (1+r) 3 (1+r) 4 (1+r) 5 Where, CF t = expected net cash flow at period t – ( -3100000 ) r = project’s cost of capital - 14% n = its life - 5 yrs = ( -3100000 ) + -826200 + 863800 + 863800 + 443800 + 233800 (1+0.14) 1 (1+0.14) 2 (1+0.14) 3 (1+0.14) 4 (1+0.14) 5 = ( -3100000 ) + - 826200 + 863,800 + 863,800 + 443,800+ 233,800 1.14 1.2996 1.4815 1.6889 1.9254 = ( -3100000 ) + -724,736.84 + 664,666.05+ 583,057.71 + 262,774.59 + 121,429.31 =-2,192,809.18 The NPV of project is negative i.e.-2192809.18 so the project should not be accepted. The modified internal rate of return is N ∑ CIF t (1+r) N-1 N t =0 COF t / (1+r) t = t=0 (1+MIRR) N Terminal value PV of costs = (1+MIRR) N =PV of terminal value
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This question was asked on Mar 19, 2010.

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