Subject : Corporate Finance -II

Ramodhan Gupta Case solution by Group B.

Members -
Swarnadip Debnath, Ashok Saikia, Anupriya , Mihir Patel , Shubhankar Dey, Akansha Nigam

Year: 0 1 2 3 4 5
Inputs:
Investment (real)
Inflation 2.00%
Land 30
Discount rate Constructio 20 30 10 0
(real) 0.0686
(nominal) 0.090 Income (real)

Tax rate 0.35 Rentals 12 12 12

Share of sales 24 24 24
Forecast errors: Costs 2 4 4 10 10 10
Real estate 2 2 3 4 4 4

Share of sal 0% Pretax inc -4 -6 -7 22 22 22

Constructio 0% Tax at 35% -1.4 -2.1 -2.45 7.7 7.7 7.7
Net income -2.6 -3.9 -4.55 14.3 14.3 14.3

No Delay? 1 Cash flow (re -52.6 -33.9 -14.55 14.3 14.3 14.3
Delay? 0 (excludes depreciation
tax shields)

NPV:
Year: 0 1 2 3 4 5
Cash flows (r 27.07 Depreciation 4 4 4
PV(tax shield 9.50 (nominal)
Total 36.6 Tax shield 0 0 1.4 1.4 1.4

Note: depreciation is not deducted from net income. PV(tax shield) is calculated
 6 7 8 9 10 11 12 13 14 15

12 12 12 12 12 12 12 12 12 12
24 24 24 24 24 24 24 24 24 24
10 10 10 10 10 10 10 10 10 10
4 4 4 4 4 4 4 4 4 4

22 22 22 22 22 22 22 22 22 22
7.7 7.7 7.7 7.7 7.7 7.7 7.7 7.7 7.7 7.7
14.3 14.3 14.3 14.3 14.3 14.3 14.3 14.3 14.3 14.3

14.3 14.3 14.3 14.3 14.3 14.3 14.3 14.3 14.3 14.3

6 7 8 9 10 11 12 13 14 15
4 4 4 4 4 4 4 4 4 4

1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4

(tax shield) is calculated separately, in order to see the effect of inflation.

16 17 18 19

-30 0

12 12 0
24 24 0
10 10 0
4 4 0

22 22 0
7.7 7.7 0
14.3 14.3 0

14.3 14.3 30.00 0

16 17 18 19
4 4 0

1.4 1.4 0
 Original NPV 36.6
[Just Put the variab
Sensitivity Analysis
% reduction of NPV

If, Delay by 12 months 31.5 14%

Overcosts Assumption 25% 24.7 32% What do these analyses reveal about the project’s ri
If,
Max 77% 0 From these analyses we can say ,
1.If, the Over cost in construction by 25% may be the
2.If the construction works delayed by 12 months NP
3..The project can't afford the store sale reduction b
worst situation.
4.If the Inflation raise by 12% the NPV reduced by 13
If, Store Sales Assumption -40% -13.6 137%
Max -29% 0

If, Inflation Assumption 12% 31.7 13%

Max Cant be as 0
 [Just Put the variables in the original calculation page, and getting the NPV according to the situation ]

eal about the project’s risks and potential value?

say ,
ction by 25% may be the cause of a loss in NPV by 32%
delayed by 12 months NPV of the project reduced by 14%
e store sale reduction by more than 29% , it should beneeded a plan B for the

% the NPV reduced by 13.4%