Homework Answers
a:
| NPV | 332494.78 |
| Year | Sales | Variable cost | Fixed cost | Depreciation | Profit before tax | Tax | OCF |
Cost of new machine |
Net cash flow |
| 0 | -1200000 | -1200000 | |||||||
| 1 | 3200000 | 2400000 | 460000 | 120000 | 220000 | 46200 | 293800 | 293800 | |
| 2 | 3200000 | 2400000 | 460000 | 120000 | 220000 | 46200 | 293800 | 293800 | |
| 3 | 3200000 | 2400000 | 460000 | 120000 | 220000 | 46200 | 293800 | 293800 | |
| 4 | 3200000 | 2400000 | 460000 | 120000 | 220000 | 46200 | 293800 | 293800 | |
| 5 | 3200000 | 2400000 | 460000 | 120000 | 220000 | 46200 | 293800 | 293800 | |
| 6 | 3200000 | 2400000 | 460000 | 120000 | 220000 | 46200 | 293800 | 293800 | |
| 7 | 3200000 | 2400000 | 460000 | 120000 | 220000 | 46200 | 293800 | 293800 | |
| 8 | 3200000 | 2400000 | 460000 | 120000 | 220000 | 46200 | 293800 | 293800 | |
| 9 | 3200000 | 2400000 | 460000 | 120000 | 220000 | 46200 | 293800 | 293800 | |
| 10 | 3200000 | 2400000 | 460000 | 120000 | 220000 | 46200 | 293800 | 293800 | |
| NPV | 332494.78 |
b:
| NPV | -1023225.84 |
In the worst case, selling price and sales are 5% less, and variable and fixed costs are 5% higher. Assuming tax rate is the same at 21%
| Year | Sales | Variable cost | Fixed cost | Depreciation | Profit before tax | Tax | OCF |
Cost of new machine |
Net cash flow |
| 0 | -1200000 | -1200000 | |||||||
| 1 | 2888000 | 2394000 | 483000 | 120000 | -109000 | -22890 | 33890 | 33890 | |
| 2 | 2888000 | 2394000 | 483000 | 120000 | -109000 | -22890 | 33890 | 33890 | |
| 3 | 2888000 | 2394000 | 483000 | 120000 | -109000 | -22890 | 33890 | 33890 | |
| 4 | 2888000 | 2394000 | 483000 | 120000 | -109000 | -22890 | 33890 | 33890 | |
| 5 | 2888000 | 2394000 | 483000 | 120000 | -109000 | -22890 | 33890 | 33890 | |
| 6 | 2888000 | 2394000 | 483000 | 120000 | -109000 | -22890 | 33890 | 33890 | |
| 7 | 2888000 | 2394000 | 483000 | 120000 | -109000 | -22890 | 33890 | 33890 | |
| 8 | 2888000 | 2394000 | 483000 | 120000 | -109000 | -22890 | 33890 | 33890 | |
| 9 | 2888000 | 2394000 | 483000 | 120000 | -109000 | -22890 | 33890 | 33890 | |
| 10 | 2888000 | 2394000 | 483000 | 120000 | -109000 | -22890 | 33890 | 33890 |
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