Cashflow analysis

0
-500,000

Initial investment
Cash savings
Tax thereon
Tax shield on depre.
Sale of machine (post tax)
-500,000
DF @8%
1.00
PV of CF
-500,000

Year
2

5
200,000
-80,000
40,000
45,000
205,000
0.68
139,520

200,000
-80,000
40,000

200,000
-80,000
40,000

200,000
-80,000
40,000

200,000
-80,000
40,000

160,000
0.93
148,148

160,000
0.86
137,174

160,000
0.79
127,013

160,000
0.74
117,605

NPV
Discount factor

169,460
8.00%

Cumulative payback
Cumulative discounted payback
IRR

19.70%

-340,000
-351,852

-180,000
-214,678

-20,000
-87,664

140,000
29,940

345,000
169,460

Period (years)
3.13
3.75

Period (years)

Alternative 2 : Automatic machine

Relevant cash items
Tax shield on depre.
16,000
Labour savings (post tax) 81,000
Out of pocket expenses (post
15,000
tax)
Floor space saving
Opportunity cost is NIL
112,000
Alternative 1
Tax shield on depre.
8,000
104,000
1
2
CDF @7% for 12 years
7.94
0.93
0.87
PV of cashflows

826,039

Cost of new machine

-480,000

Sale of old machines

100,000

3
0.82

4
0.76

5
0.71

6
0.67

Tax savings on loss on sale 56,000

NPV

502,039

Note: The only item in alternative 1 is tax shield on depreciation which is included as a negative item in this calculation. Henc

7
0.62

8
0.58

9
0.54

10
0.51

11
0.48

ve item in this calculation. Hence no need to calculate for alternative 1

12
0.44

Continue with production

Units
Unit Price
Sales
Cash Cost Of Goods Sold
Depriciation
Gross Profit
Sell Gen and Admin
PBT
Tax
Net Profit
Add back depre.
WC
Capex
CF
DF @ 12%
PV
NPV
Discount Rate

1
1998
1,000
20.00
20,000
10,000
1,057
8,943
7,000
1,943
777
1,166
2,223

2
1999
1,000
20.60
20,600
10,300
1,124
9,176
7,210
1,966
786
1,180
2,304

3
2000
1,000
21.00
21,000
10,609
1,204
9,187
7,426
1,761
704
1,056
2,260

4
2001
1,000
21.15
21,150
10,927
1,304
8,919
7,649
1,270
508
762
2,066

5
2002
1,000
21.25
21,250
11,255
1,404
8,591
7,879
712
285
427
1,831

-108
-400

-111
-400

-79
-400

-40
-400

-33
-300

1,715
0.89
1,531
8,846

1,793
0.80
1,429

1,781
0.71
1,268

1,626
0.64
1,033

1,498
0.57
850

12.00%

Discontinue production
WC
FA
Tax benefit on loss on sale

3592
3000
1600
8192

Net benefit on continuing

654 Continue

('000)
6
2003
1,000
21.25
21,250
11,593
1,504
8,153
8,115
38
15
23
1,527

7
2004
1,000
21.00
21,000
11,941
1,504
7,555
8,358
-803
-321
-482
1,022

8
2005
19.00
-

-17
-200

23
-

3,957
-

1,310
0.51
664

1,045
0.45
473

3,957
0.40
1,598

Continue with production

Depriciation
Net Profit
Add back depre.

1
1998
200
30
230

2
1999
200
52
252

3
2000
200
343
543

4
2001
200
594
794

5
2002
200
535
735

6
2003
200
459
659

7
2004
200
343
543

WC

-925

-28

-20

-10

-8

-4

CF
DF @ 12%
PV
NPV

-695
224
0.89
0.80
-621
179
421 Approve

523
0.71
372

784
0.64
498

727
0.57
413

655
0.51
332

549
0.45
248

Discount Rate

12.00%

('000)
8
2005
989
989
0.40
399

Scenario 1: Worst Case

1
0.88

2
0.78

3
0.69

4
0.61

5
0.54

Year 1
FCF
Recovery
CF
DF @ 13%
PV

170
170
0.88
150

Investment

-350

NPV

-200

Scenario
High
Most likely
Worst

NPV

Annual

98
6.46
633

Additional
FCF
DF @ 13%
PV

-350

Investment

Probability
520
0.17
-33
0.66
-200
0.17
NPV

Scenario 2: Most likely Case

Annual
FCF
DF @ 13%
PV

49
6.46
317

Investment

-350

NPV

-33

Scenario 3: Highly successful Case

Original
FCF
DF @ 13%
PV
Investment

Annual

NPV

283

Total NPV

520

NPV

98
6.30
618
-350
237

88
-22
-34
32 Recommend

6
0.48

7
0.43

8
0.38

9
0.33

10
0.29

11
0.26

12
0.23

13
0.20

14
0.18

15
0.16

A)

Stable Perpetuity

$1,000,000

B)

Stable Perpetuity
Starting year 4

$683,013

C)

Growing Perpetuity

$833,333

C)

Growing Perpetuity
Starting year 4

$569,178

Hampton Tools

CFO

1
1999
7,965

2
2000
8,672

3
2001
9,448

4
2002
10,539

WC

-516

-537

-558

-581

-604

-628

-4,938

-5,136

-5,341

-5,555

-5,777

-6,008

CF

2,511

2,999

3,549

4,403

5,044

DF @ 10%
PV

0.91
2,283

0.83
2,479

0.75
2,666

0.68
3,007

0.62
3,132

5,246
87,429
0.62
54,287

Capx

Maximum price to be paid

Discount Rate

10%

67,854

5
2003 Perpetuity
11,425
11,882

PV of CF

$210,000

Initial investment

$110,000

NPV

$100,000

Existing Assets
Value of New Project
Total Assets

1,000,000
210,000
1,210,000

Equity
New Equity
Total Equity

1,000,000
110,000
1,110,000

Assets/$ Equity

1.09

Post issue share price

109

Value of exisiting equity

Value of new equity
Number of shares to be issued
Share issue price

1,090,090
119,910
1,100
100