Year 1 Sales Price

Year 2 Sales Price

Year 3 Sales Price

Year 4 Sales Price

Year 5 Sales Price

Year 1 Units Sold

NPV

CASO

BASE $3,545,423 $6.00 $6.05 $6.10 $6.15 $6.20 802,000

PEOR $1,694,940 $5.99 $6.04 $6.11 $6.23 $6.12 782,760
MEJOR $4,311,292 $6.06 $6.05 $6.07 $6.04 $6.36 820,747

Mean $2,959,711 $6.00 $6.05 $6.10 $6.16 $6.22 801,194

Std Dev $491,538 $0.04 $0.04 $0.04 $0.07 $0.09 25,399
 Cost of Revenues %

Operating Cost %
Year 2 Units Sold

Year 3 Units Sold

Year 4 Units Sold

Year 5 Units Sold

962,400 1,154,880 1,385,856 1,663,027 55% 15% 12%

985,083 1,150,039 1,281,600 1,423,972 64% 17%
944,880 1,117,441 1,346,324 1,519,500 50% 12%

967,896 1,131,808 1,296,861 1,461,435 57% 15%

30,620 29,371 35,183 34,461 3% 2%
 472630915.xls

Crystal Ball Report - Assumptions

No Simulation Data

Page 3
 472630915.xls

Assumptions

Worksheet: [Ejemplo 1-DCF Analysis.xls]Model

Assumption: Cost of Revenues % Cell: B23

Triangular distribution with parameters:

Minimum 50%
Likeliest 55%
Maximum 65%

Assumption: Operating Cost % Cell: B24

Normal distribution with parameters:

Mean 15%
Std. Dev. 2%

Assumption: Year 1 Sales Price Cell: C4

Triangular distribution with parameters:

Minimum $5.90
Likeliest $6.00
Maximum $6.10

Assumption: Year 1 Units Sold Cell: C5

Normal distribution with parameters:

Mean 802,000
Std. Dev. 25,000

Page 4
 472630915.xls

Assumption: Year 2 Sales Price Cell: D4

Triangular distribution with parameters:

Minimum $5.95
Likeliest $6.05
Maximum $6.15

Assumption: Year 2 Units Sold Cell: D5

Normal distribution with parameters:

Mean 967,000
Std. Dev. 30,000

Assumption: Year 3 Sales Price Cell: E4

Triangular distribution with parameters:

Minimum $6.00
Likeliest $6.10
Maximum $6.20

Assumption: Year 3 Units Sold Cell: E5

Normal distribution with parameters:

Mean 1,132,000
Std. Dev. 30,000

Page 5
 472630915.xls

Assumption: Year 4 Sales Price Cell: F4

Triangular distribution with parameters:

Minimum $6.00
Likeliest $6.15
Maximum $6.35

Assumption: Year 4 Units Sold Cell: F5

Normal distribution with parameters:

Mean 1,297,000
Std. Dev. 35,000

Assumption: Year 5 Sales Price Cell: G4

Triangular distribution with parameters:

Minimum $6.00
Likeliest $6.20
Maximum $6.45

Assumption: Year 5 Units Sold Cell: G5

Normal distribution with parameters:

Mean 1,462,000
Std. Dev. 35,000

End of Assumptions

Page 6
DCF Analysis - AllergyGone
Author
Decisioneering, Inc.

Resumen

Su compañía farmacéutica está muy interesada en adquirir AllergyGone, una nueva droga
nueva contra la alergia sin efectos secundarios conocidos. Le han pedido producir un análisis
descontado del flujo de caja (DCF) de AllergyGone para un período de cinco años, a efecto de
determinar si este producto vale la pena de ser adquirido. Debido a la incertidumbre en la
valoracion del producto, las demandas, y los costes, su compañía ha decidido utilizar Crystal
Ball para simular el valor actual neto (NPV) y la tasa interna de retorno (IRR) antes de las
negociaciones. CB puede ayudarle a determinar un precio base de negociación y a determinar
las variables del modelo que generan la variabilidad en los pronósticos de NPV y de IRR.

Palabras clave: Flujo de caja descontado, valor actual neto, valuación, análisis de la
incertidumbre, productos farmacéuticos, valor de la droga, grafico de tendencia, negociación.

Discusión

Los resultados de su análisis del flujo de caja sugieren que la adquisición de AllergyGone tiene
mérito. El NPV es aproximadamente $345.000 con una IRR de 15%. Ambos valores han sido
calculados usando las funciones de Excel a partir de los flujos, tanto negativos como positivos
para el período de cinco años. Asimismo, la inversión inicial de $3.400.000 del año 0. Puesto
que el IRR excede la tasa de corte de su compañía (10%), el proyecto excede el coste de
capital de su compañía, y su respuesta inicial debería ser aprobar la adquisición de
AllergyGone. A pesar de los resultados positivos de DCF, usted tiene algunas preocupaciones
serias por la incertidumbre que rodea las proyecciones y las variables importantes. De acuerdo
con su investigación de drogas similares, usted estima un aumento gradual en el precio de
Cost/Package sobre el período de cinco años y un aumento de 165.000 en el número de
unidades vendidas. Usted está enterado que el mercado para las drogas de la alergia es
altamente competitivo. Los productos similares podrían forzarle bajar el precio por unidad
después del año 1 y esa competición podría afectar el número de unidades vendidas después
del año 1. El caso base de su analisis no refleja estas preocupaciones, así que puede ser
demasiado optimista. Usted también ha hecho supuestos importantes con respecto a la tasa de
impuestos, tasa de descuento, costo de ventas y costos operativos. Usted sabe que las dos
variables de costo son pueden cambiar cada año, pero ha aceptado los valores medios para
describir su incertidumbre. Usted puede probar el efecto de estas variables sobre el NPV y el
IRR incremental cambiando los valores en la parte de abjo del modelo.

Nota: Este modelo es un ejemplo simplificado de flujo de caja. Se ha hecho varios supuestos
(e.g., la depreciación es igual al capital de trabajo, no hay interés, y los gastos en inversión de
capital son insignificantes) que necesitarían ser considerados en un modelo más realista de
DCF.
DCF Analysis - AllergyGone
Author
Decisioneering, Inc.

Summary
Your pharmaceutical company is very interested in acquiring AllergyGone, a potential new anti-allergy
drug with no known side effects. You have been asked to produce a Discounted Cash Flow (DCF)
analysis of AllergyGone over a five-year period to determine if this product is worth acquiring. Because
of the uncertainty in the product pricing, demands, and costs, your company has decided to use
Crystal Ball to simulate the Net Present Value (NPV) and Internal Rate of Return (IRR) prior to
negotiations. Crystal Ball can help you to determine a bottom-line negotiation price and the model
variables that drive the variability in the NPV and IRR forecasts.

Keywords: Discounted Cash Flow, Net Present Value, valuation, uncertainty analysis,
pharmaceuticals, drug value, trend chart, negotiation

Discussion
The overall results in your cash flow spreadsheet analysis suggest that the acquisition of AllergyGone
would be worthwhile. The measure of success is the IRR and NPV calculations. The NPV is
approximately $345,000 with an IRR of 15%. Both of these values were calculated using the Excel
functions and the negative and positive cash flows over the five-year period and the initial investment
of $3,400,000 in Year 0. Since the IRR exceeds your company’s hurdle rate (defined here as the
discount rate of 10%), the project exceeds your company’s cost of capital, and your initial response
should be to approve the acquisition of AllergyGone.

Yet, despite the positive DCF results, you have some serious concerns about the uncertainty
surrounding a number of the important projections and variables. Based on your research of similar
drugs, you estimated a gradual increase in the Cost/Package price over the five-year period and a
steady 165,000 increase in the number of units sold. You are aware that the market for allergy drugs is
highly competitive. Similar products could force you to lower the price per unit after Year 1 and that
competition could impact the number of units sold after Year 1. Your base case spreadsheet analysis
does not reflect these possibilities and so may be overly optimistic.

You have also made important assumptions regarding the percentage of Taxes, the Discount Rate, the
Cost of Revenues, and the Operating Costs. You know that the two cost variables (Revenues and
Operations) are likely to change each year, but you have accepted average values to describe their
uncertainty. You can test their effect on the NPV and IRR by incrementally changing the values at the
bottom of the model.

Note: This model is a simplified cash flow example. You have made several assumptions (e.g.,
depreciation is equal to working capital, there is no interest, and capital expenditures are negligible)
that would need to be accounted for in a more realistic DCF model.
Using Crystal Ball
Crystal Ball enhances your Excel model by letting you create probability distributions that describe
the uncertainty surrounding specific input variables. This model includes 12 probability distributions,
referred to in Crystal Ball as "assumptions." Five assumptions describe the uncertainty around the
annual Cost/Package of the product, and five others describe the uncertainty around the annual
number of units sold. The final two assumptions describe the uncertainty for the Cost of Revenue
and Operating Costs.

Each assumption cell is colored green and is marked by an Excel note (mouse over the cell to view
the note). To view the details of an assumption, highlight the cell and either select Define Assumption
from the Define menu or click on the Define Assumption button on the Crystal Ball toolbar. The
ranges and types of assumptions are based on your market research.

This model also includes seven Crystal Ball forecasts, shown in light blue. Forecasts are equations,
or outputs, that you want to analyze after a simulation. During a simulation, Crystal Ball saves the
values in the forecast cells and displays them in a Forecast Chart, which is a histogram of the
simulated values. In this example, you want to analyze the NPV and IRR and the Net Income for
each year. To view a forecast with Crystal Ball, highlight the cell and either select Define Forecast
from the Define menu or click on the Define Forecast button on the toolbar.

When you run a simulation, Crystal Ball generates a random number for each assumption (based on
how the assumption has been defined) and places that new value in the cell. Excel then recalculates
the model. You can test this by selecting Single Step from the Run menu or clicking on the Single
Step button on the toolbar.

After you run a simulation, you will see the NPV and IRR Forecast Charts, which you can use to
analyze the potential success of AllergyGone. What is the mean NPV? What is your certainty of
making $345,000 (your original prediction)? What is the certainty that you may lose money on this
product? You can view the statistics and percentiles of the forecast, too. What about the IRR? What
is the certainty that the value will be greater than your hurdle rate of 10%? What about the certainty
being less than the base case estimate of 15%? Given your level of risk tolerance, would you
approve the acquisition?

To view which of the assumptions had the greatest impact on the IRR, use the Sensitivity Chart. If
the Target Forecast is not IRR, then you must change this in the Chart Preferences. Which
assumptions most affect the IRR? Is one assumption dominant? Do the units sold or share price
assumptions have a greater or lesser effect than the cost assumptions? Is there something you
could change in your management or marketing of AllergyGone that would reduce the range of the
assumptions with the greatest impact on IRR? Do you see similar or different sensitivity results for
the NPV?

Another useful feature of Crystal Ball is the trend chart, which lets you view a series of related
assumptions in a single chart. To view the trend chart of the five Net Income forecasts, either select
Trend Charts from the Analyze menu or click on the Trend Charts button on the Crystal Ball toolbar.
Click on New and select the five Net Income forecasts in the order of Year 1 through Year 5. When
you view the trend chart, what is the overall trend in net income? What happens to the uncertainty
bands as you move towards Year 5?
Additional Resources
If you have Crystal Ball installed, you can run a simulation on this model. If you do not have a copy
of Crystal Ball, you can download a free, seven-day evaluation version from the Decisioneering Web
site:

http://www.crystalball.com/downloadform.html

For other model resources and information, visit: http://models.crystalball.com.

Copyright and Contact Information

This spreadsheet model is the property of Decisioneering, Inc. Copyright (c) 2004 Decisioneering,
Inc. All Rights Reserved.

Microsoft is a registered trademark of Microsoft Corporation in the U.S. and other countries.

For questions concerning this model or the Crystal Ball software, contact the closest office listed on
our Web site (http://www.crystalball.com) or send an email to sales@crystalball.com. If you have a
technical problem with this model, please contact our support Help Desk: helpdesk@crystalball.com.
Análisis de flujo de caja descontado - AllergyGone
Año 0 Año 1 Año 2 Año 3 Año 4
Precio por paquete $6.00 $6.05 $6.10 $6.15
Cantidad vendida 802,000 962,400 1,154,880 1,385,856
Ingresos $4,812,000 $5,822,520 $7,044,768 $8,523,014

Costo de ventas $2,646,600 $3,202,386 $3,874,622 $4,687,658

Utilidad bruta $2,165,400 $2,620,134 $3,170,146 $3,835,356

Costos de operación $324,810 $393,020 $475,522 $575,303

Utilidad antes de impuestos $1,840,590 $2,227,114 $2,694,624 $3,260,053
Impuestos $588,989 $712,676 $862,280 $1,043,217
Inversion inicial -$3,400,000
Utilidad neta -$3,400,000 $1,251,601 $1,514,437 $1,832,344 $2,216,836

VAN $3,545,423
TIR 40%

Supuestos CELDAS VERDES CONSTITUYEN VARIABLES DE RIESGO (ASUMPTIONs)

Tasa de impuestos 32% CELDAS CELESTES CONTIENEN VARIABLES DE RESULTADO (FORECASTs)
Tasa de descuento 10%
Costo de ventas % 55%
Costo de operacion % 15%

Otros supuestos: Depreciacion es igual que el capital de trabajo, no existen intereses, gastos de capital irrelevantes.
 Año 5
$6.20
1,663,027 1.2000
$10,310,769

$5,670,923
$4,639,846

$695,977
$3,943,869
$1,262,038

$2,681,831

S DE RIESGO (ASUMPTIONs)
DE RESULTADO (FORECASTs)

capital irrelevantes.
 NPV

00

00

00

00

00
00
,0

,0

,0

,0

,0

,0
00

00

00

00

00

00
,0

,0

,0

,0

,0

,0
$0

$1

$2

$3

$4

$5

$6
Cost of Revenues % $1,606,130 $4,845,390

Year 5 Sales Price $2,932,977 $3,518,543

Year 5 Units Sold $2,932,977 $3,518,543

Year 4 Sales Price $2,942,350 $3,509,170

Year 4 Units Sold $2,942,350 $3,509,170

Year 3 Sales Price $2,955,881 $3,495,639

Year 3 Units Sold $2,955,881 $3,495,639

Year 2 Sales Price $2,974,243 $3,477,277

Year 2 Units Sold $2,974,243 $3,477,277

Operating Cost % $2,991,910 $3,459,610

Year 1 Sales Price $2,998,196 $3,453,324

Year 1 Units Sold $2,998,196 $3,453,324

 NPV Input
Variable Downside Upside Range Downside Upside Base Case
Cost of Revenues % $4,845,390 $1,606,130 $3,239,260 44% 66% 55%
Year 5 Sales Price $2,932,977 $3,518,543 $585,566 $4.96 $7.44 $6.20
Year 5 Units Sold $2,932,977 $3,518,543 $585,566 1,169,600 1,754,400 1,462,000
Year 4 Sales Price $2,942,350 $3,509,170 $566,819 $4.92 $7.38 $6.15
Year 4 Units Sold $2,942,350 $3,509,170 $566,819 1,037,600 1,556,400 1,297,000
Year 3 Sales Price $2,955,881 $3,495,639 $539,757 $4.88 $7.32 $6.10
Year 3 Units Sold $2,955,881 $3,495,639 $539,757 905,600 1,358,400 1,132,000
Year 2 Sales Price $2,974,243 $3,477,277 $503,033 $4.84 $7.26 $6.05
Year 2 Units Sold $2,974,243 $3,477,277 $503,033 773,600 1,160,400 967,000
Operating Cost % $3,459,610 $2,991,910 $467,701 12% 18% 15%
Year 1 Sales Price $2,998,196 $3,453,324 $455,128 $4.80 $7.20 $6.00
Year 1 Units Sold $2,998,196 $3,453,324 $455,128 641,600 962,400 802,000