Old Machine

Volume growth
Inflation

Year

2002
Year 0

Revenue Calculation
Volume in units per week
Weeks in year
Annual volume
Price per unit
Revenue

500,000
52
26,000,000
1.0235
26,611,000

Cost Calculation
Direct materials/unit

0.4500

Cost of returns (figure) per pound

0.0770

Conversion costs excl returns

0.3530

Total direct costs

Indirect costs, excl depreciation
Depreciation
Operating Income
Tax rate
NOPAT
add back Depreciation
FCF

22,880,000
1,862,770
500,000
1,368,230
36%
875,667
500,000
1,375,667

2%

2%

2%

2%

2%

1%

1%

1%

1%

1%

2003

2004

2005

2006

2007

Year 1

Year 2

Year 3

Year 4

Year 5

510,000
52

520,200
###

530,604
52

541,216
###

552,040
52

26,520,000

27,050,400

27,591,408

28,143,236

28,706,101

1.0337

1.0441

1.0545

1.0651

1.0757

27,414,652

28,242,575

29,095,500

29,974,185

30,879,405

0.4545

0.4590

0.4636

0.4683

0.4730

0.0778

0.0785

0.0793

0.0801

0.0809

0.3565

0.3601

0.3637

0.3673

0.3710

23,570,976

24,282,819

25,016,161

25,771,649

26,549,952

1,919,026

1,976,980

2,036,685

2,098,193

2,161,558

500,000
1,424,651
36%

###
1,482,775
36%

500,000
1,542,655
36%

###
1,604,343
36%

911,776

948,976

987,299

1,026,780

500,000

500,000

500,000

500,000

1,411,776

1,448,976

1,487,299

1,526,780

2,167,894
36%
1,387,452
1,387,452

2%

2%

2%

2%

2%

1%

1%

1%

1%

1%

2008

2009

2010

2011

2012

Year 6

Year 7

Year 8

Year 9

Year 10

563,081
52

574,343
###

585,830
52

597,546
###

600,000.00
52

29,280,223

29,865,827

30,463,144

31,072,407

31,200,000

1.0865

1.0973

1.1083

1.1194

1.1306

31,811,963

32,772,684

33,762,419

34,782,044

35,274,119

0.4777

0.4825

0.4873

0.4922

0.4971

0.0817

0.0826

0.0834

0.0842

0.0851

0.3747

0.3785

0.3822

0.3861

0.3899

27,351,761

28,177,784

29,028,753

29,905,422

30,328,505

2,226,837

2,294,088

2,363,369

2,434,743

2,469,188

2,233,365
36%
1,429,353
1,429,353

2,300,812
36%
1,472,520
1,472,520

2,370,297
36%
1,516,990
1,516,990

2,441,880
36%
1,562,803
1,562,803

2,476,426
36%
1,584,913
1,584,913

max

New Machine
Volume growth
Inflation
Year

2002
Year 0

Revenue Calculation
Volume in units per week
Weeks in year
Annual volume
Price per unit
Revenue
Cost Calculation
Direct materials/unit
Cost of returns (figure) per pound
Conversion costs excl returns
Total direct costs
Indirect costs, excl depreciation
Depreciation
Operating Income
Tax rate
NOPAT
add back Depreciation
OCF
Days in inventory
Inventory = COGS*(days/365): assumes FGI in inv
Reinvestment in operations (ST & LT)
FCF

(8,250,000)

NPV 1
NPV 2

18,168,764
13,676,812

IRR
MIRR 1

1,880,548

45.57%
19.06%

2%
1%

2%
1%

2%
1%

2%
1%

2%
1%

2003
Year 1

2004
Year 2

2005
Year 3

2006
Year 4

2007
Year 5

484,500
52
25,194,000
1.1371
28,648,312

494,190
###
25,697,880
1.1485
29,513,491

504,074
52
26,211,838
1.1600
30,404,798

514,155
###
26,736,074
1.1716
31,323,023

524,438
52
27,270,796
1.1833
32,268,978

0.4545
0.0840
0.3230
21,704,631
2,005,382
825,000
4,113,299
36%
2,632,511
825,000
3,457,511
20
1,189,295
(691,253)
4,148,764

0.4590
0.0848
0.3262
22,360,111
2,065,944
825,000
4,262,435
36%
2,727,959
825,000
3,552,959
20
1,225,212
35,917
3,517,042

0.4636
0.0857
0.3295
23,035,386
2,128,336
825,000
4,416,076
36%
2,826,289
825,000
3,651,289
20
1,262,213
37,001
3,614,287

0.4683
0.0865
0.3328
23,731,055
2,192,612
825,000
4,574,356
36%
2,927,588
825,000
3,752,588
20
1,300,332
38,119
3,714,469

0.4730
0.0874
0.3361
24,447,733
2,258,828
825,000
4,737,417
36%
3,031,947
825,000
3,856,947
20
1,339,602
39,270
3,817,677

Free Cashflow Analysis

5,000,000
4,000,000
3,000,000
2,000,000
1,000,000

5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
-

2003

2004

2005

2006

2007

New Machine

2008

2009

Old Machine

2010

2011

2012

2%
1%

2%
1%

2%
1%

2%
1%

2%
1%

2008
Year 6

2009
Year 7

2010
Year 8

2011
Year 9

2012
Year 10

534,927
52
27,816,212
1.1951
33,243,501

545,626
###
28,372,536
1.2071
34,247,455

556,538
52
28,939,987
1.2191
35,281,728

567,669
###
29,518,786
1.2313
36,347,236

579,022
52
30,109,162
1.2436
37,444,923

0.4777
0.0883
0.3395
25,186,054
2,327,045
825,000
4,905,402
36%
3,139,457
825,000
3,964,457
20
1,380,058
40,456
3,924,001

0.4825
0.0892
0.3429
25,946,673
2,397,322
825,000
5,078,460
36%
3,250,214
825,000
4,075,214
20
1,421,736
41,678
4,033,537

0.4873
0.0901
0.3463
26,730,263
2,469,721
825,000
5,256,745
36%
3,364,317
825,000
4,189,317
20
1,464,672
42,936
4,146,380

0.4922
0.0910
0.3498
27,537,517
2,544,307
825,000
5,440,413
36%
3,481,864
825,000
4,306,864
20
1,508,905
44,233
4,262,631

0.4971
0.0919
0.3533
28,369,150
2,621,145
825,000
5,629,629
36%
3,602,962
825,000
4,427,962
20
1,554,474
45,569
4,382,393

nalysis

2009

d Machine

2010

2011

2012

Scheme 1
Scheme 2

Composition
100% Debt
42% Liability
58% Equity

Reinvesment Rate

kd
6.90%
6.90%

ke

CoC
6.90%
10.62%

13.31%

3.98%

New Machine

$8.05 MM for machine

$0.115MM structural alterations
$0.055MM airflow modification
$0.030MM testing cost
LESS: $0.5MM from sale of existing machine
LESS: $0.54MM tax savings because old machine sells below BV ([$0.5M
PLUS: Training (expense :. after tax) = $0.05MM*(1-36%) = 32k

Acqusition Coct

8.25MM capitalized cost

lls below BV ([$0.5MM - $2.0MM]*36%)

36%) = 32k