MathesonElectronic

Ma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Total
Units 6,000 12,000 15,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000

Initial
-315,000.00
Investment
Working
-60,000.00
Capital
Salvage
Value

Sales 210,000.00 420,000.00 525,000.00 630,000.00 630,000.00 630,000.00 630,000.00 630,000.00 630,000.00 630,000.00 630,000.00 630,000.00 6,825,000.00

Variable
90,000.00 180,000.00 225,000.00 270,000.00 270,000.00 270,000.00 270,000.00 270,000.00 270,000.00 270,000.00 270,000.00 270,000.00 2,925,000.00
Costs
Fixed
135,000.00 135,000.00 135,000.00 135,000.00 135,000.00 135,000.00 135,000.00 135,000.00 135,000.00 135,000.00 135,000.00 135,000.00 1,620,000.00
Costs
Advertising
180,000.00 180,000.00 150,000.00 120,000.00 120,000.00 120,000.00 120,000.00 120,000.00 120,000.00 120,000.00 120,000.00 120,000.00 1,590,000.00
costs
Total
405,000.00 495,000.00 510,000.00 525,000.00 525,000.00 525,000.00 525,000.00 525,000.00 525,000.00 525,000.00 525,000.00 525,000.00 6,135,000.00
Costs (2)

Net
Income / -195,000.00 -75,000.00 15,000.00 105,000.00 105,000.00 105,000.00 105,000.00 105,000.00 105,000.00 105,000.00 105,000.00 105,000.00 690,000.00
(Loss)

Depreciatio
25,000.00 25,000.00 25,000.00 25,000.00 25,000.00 25,000.00 25,000.00 25,000.00 25,000.00 25,000.00 25,000.00 25,000.00 300,000.00
n\
Net Cash
-545,000.00 -50,000.00 40,000.00 130,000.00 130,000.00 130,000.00 130,000.00 130,000.00 130,000.00 130,000.00 130,000.00 130,000.00 615,000.00
Flow

PV Factor
@14% for 0.8772 0.7695 0.675 0.5921 0.5194 0.4556 0.3996 0.3506 0.3075 0.2697 0.2366 0.2076
$1 **

Present
Value of -478074 -38475 27000 76973 67522 59228 51948 45578 39975 35061 30758 26988 -55,518.00
Cash Flow

We would recommend not to accept the device as a new product

Elberta Fruit
1
Present cost of transient workers 40,000
Less:
Cost of an operator and assistant 14,000
Insurance 200
Fuel 1800
Maintenance contract 3000 19,000

Annual savings in cash operating cost 21,000

2
Annual savings in cash operating costs 21,000
Less annual depreciation [90,000 ÷ 10 years] 9000
Annual incremental net operating income 12,000

12,000
94,500

0.126984127 12.70%

No, the cherry picker would not be purchased. The expected return is less than the 16% return required by the farm.

3 94500
21000

4.5

Yes, the cherry picker would be purchased. The payback period is less than 5 years.
 4
94500
21000

4.5

No, the simple rate of return is not an accurate guide in investment decisions. It ignores the time value of money.
RevCo
1
Project
1 2 3 4

66,140.00 72,970.00 73,400.00 87,270.00

270,000.00 24.50% 450,000.00 16.22% 360,000.00 20.39% 480,000.00 18.18%

2
Net Present Value Project Profitability Index Internal Rate of Return
1st 4TH 1ST 2ND
2nd 3RD 4TH 1ST
3rd 2ND 2ND 3RD
4th 1ST 3RD 4TH

Project Profitability Index is better than the net present value and internal rate of return because one of its factors is the time value of money