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Tutorial Soln (Profitability Analyses)
Tutorial Soln (Profitability Analyses)
Solutions
Problem 1
Yr FCI WC Sales Rev Op Cost CF before tax Depr Taxable income Tax paid CF after tax Cum CF after tax
0 -10 -10 -10 -10.00
1 -90 -90 -90 -100.00
2 -60 -30 -90 -90 -190.00
3 75 30 45 30 15 6.75 38.25 -151.75
4 75 30 45 48 -3 -1.35 46.35 -105.40
5 75 30 45 28.8 16.2 7.29 37.71 -67.69
6 75 30 45 17.28 27.72 12.474 32.526 -35.16
7 75 30 45 17.28 27.72 12.474 32.526 -2.64
8 75 30 45 8.64 36.36 16.362 28.638 26.00
9 75 30 45 45 20.25 24.75 50.75
10 75 30 45 45 20.25 24.75 75.50
11 75 30 45 45 20.25 24.75 100.25
12 10 30 85 30 55 55 24.75 70.25 170.50
150.00
100.00
50.00
0.00
0 2 4 6 8 10 12 14
-50.00
-100.00
-150.00
-200.00
-250.00
(c) DCFROR is the interest rate at which all the cash flows must be discounted in order for the net
present value of the project to be equal to zero.
The value of the DCFROR is found at NPV = 0. Interpolate between 12% and 13%
(𝐷𝐶𝐹𝑅𝑂𝑅 − 12%) (0 − 0.77)
= = 0.109
(13% − 12%) −6.32 − 0.77
Sales Op Cash flow Depr Taxable Tax Cash flow Cumm cash
Yr FCI WC revenue cost before tax allowance income payment after tax flow after tax
rate = 40%
0 -0.8 -0.8 -0.8 -0.80
1 -5 -5 -5 -5.80
2 -2.7 -2 -4.7 -4.7 -10.50
3 4.1 1.9 2.2 0.77 1.43 0.572 1.628 -8.87
4 4.1 1.9 2.2 0.77 1.43 0.572 1.628 -7.24
5 4.1 1.9 2.2 0.77 1.43 0.572 1.628 -5.62
6 4.1 1.9 2.2 0.77 1.43 0.572 1.628 -3.99
7 4.1 1.9 2.2 0.77 1.43 0.572 1.628 -2.36
8 4.1 1.9 2.2 0.77 1.43 0.572 1.628 -0.73
9 4.1 1.9 2.2 0.77 1.43 0.572 1.628 0.90
10 4.1 1.9 2.2 0.77 1.43 0.572 1.628 2.52
11 4.1 1.9 2.2 0.77 1.43 0.572 1.628 4.15
12 0.8 2 4.1 1.9 2.2 0.77 1.43 0.572 4.428 8.58
5.00
0.00
0 2 4 6 8 10 12 14
-5.00
-10.00
-15.00
Discounted Cash Flow Table (Cash flows are in $million)
Cash flow Discounted Cum discounted
End of year
after tax cash flow CF
i = 11%
0 -0.8 -0.80 -0.80
1 -5 -4.50 -5.30
2 -4.7 -3.81 -9.12
3 1.628 1.19 -7.93
4 1.628 1.07 -6.86
5 1.628 0.97 -5.89
6 1.628 0.87 -5.02
7 1.628 0.78 -4.24
8 1.628 0.71 -3.53
9 1.628 0.64 -2.89
10 1.628 0.57 -2.32
11 1.628 0.52 -1.80
12 4.428 1.27 -0.54
Problem 3
(a) Depreciation allowance: 500/10 = GH¢ 50
NB: Fixed operating cost includes depreciation. Hence, depreciation amount is taken out before the fixed
operating cost is added to the variable operating cost to obtain the total operating cost.
Non-discounted Cash Flow Table (Cash flows are in GH¢ million)
End of End Fixed Variable Total CF Taxable Tax Non-Disc.
yr of yr FCI WC Rev Op Cost Op Cost Op Cost before tax Dep Inc Paid CF
2023 0 0 0
2034 11 132 720 22.5 515 537.5 182.5 50 132.5 39.75 274.75
Discounted Cash Flow Table (Cash flows are in GH¢ million)
End Cash flow Discounted cash flow Cum Discounted
n
of yr after tax (CF/(1+i)n Cash Flow
2023 0 0 0 0
2024 1 -632 -574.545 -574.545
2025 2 142.75 117.9752 -456.57
2026 3 142.75 107.2502 -349.32
2027 4 142.75 97.50017 -251.82
2028 5 142.75 88.63652 -163.183
2029 6 142.75 80.57865 -82.6047
2030 7 142.75 73.25332 -9.3514
2031 8 142.75 66.59393 57.2425
2032 9 142.75 60.53994 117.782
2033 10 142.75 55.0363 172.819
2034 11 274.75 96.2982 269.117
400
300
200
100
0
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
-100
-200
-300
-400
-500
-600
-700