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  • Chapter 6-Examples

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    Nguyen Tan Anh
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    1. The document provides information to analyze the costs and profits of a proposed factory over a 5 year period without considering inflation, including costs of test marketing, the factory site, equipment, production levels, prices, costs, and working capital. 2. Revenue and profits increase each year as production and sales grow, but costs also rise 10% annually. 3. The net present value of the project must consider the installed costs of equipment and factory site, changes in working capital needs each period, and the after tax salvage value at the end.

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    1. The document provides information to analyze the costs and profits of a proposed factory over a 5 year period without considering inflation, including costs of test marketing, the factory site, equipment, production levels, prices, costs, and working capital. 2. Revenue and profits increase each year as production and sales grow, but costs also rise 10% annually. 3. The net present value of the project must consider the installed costs of equipment and factory site, changes in working capital needs each period, and the after tax salvage value at the end.

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    13 views6 pages

    Chapter 6-Examples

    Uploaded by

    Nguyen Tan Anh
    1. The document provides information to analyze the costs and profits of a proposed factory over a 5 year period without considering inflation, including costs of test marketing, the factory site, equipment, production levels, prices, costs, and working capital. 2. Revenue and profits increase each year as production and sales grow, but costs also rise 10% annually. 3. The net present value of the project must consider the installed costs of equipment and factory site, changes in working capital needs each period, and the after tax salvage value at the end.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    of 6

    INPUT SUMMARY

    Cost of test marketing 250,000


    Current market value of proposed factory site 150,000
    Cost of bowling ball machine 100,000
    Increase in net working capital: 10,000
    Production (in units) 1 2 3 4
    Number of unit 5,000 8,000 12,000 10,000
    Price during first year 20 per unit
    Price increase % 2%
    Production costs 10 per unit
    Cost increase % 10%
    Annual inflation rate 5%
    Working Capital 10,000
    Working Capital increase in the following yea 10% of sales
    Discount rate 10%
    Tax rate 21%
    After tax salvage value 30,000

    WORKING SESSION WITHOUT THE INFLATION


    Production (in units) 1 2 3 4
    Number of unit 5,000.00 8,000.00 12,000.00 10,000.00
    Unit selling price 20.00 20.40 20.81 21.22
    Unit cost 10.00 11.00 12.10 13.31

    0 1 2 3
    Beginning value 100,000 80,000 48,000
    MACRS Depreciation rate 20.00% 32.00% 19.20%
    Depreciation 20,000 32,000 19,200
    Accumulated Depreciation 20,000 52,000 71,200
    Ending Value 100,000 80,000 48,000 28,800

    0 1 2 3
    Revenue 100,000 163,200 249,696
    Costs 50,000 88,000 145,200
    Depreciation 20,000 32,000 19,200
    EBIT 30,000 43,200 85,296
    Interest 0 0 0
    Tax @21% 6,300 9,072 17,912
    EBT 30,000 43,200 85,296
    Net income 23,700 34,128 67,384
    Operating cashflow =EBIT+Depreciation-Tax 43,700 66,128 86,584
    Purchase of FA (100,000)
    After taxes salvage value
    Opportunity cost of the factory site (150,000)
    Net working capital 10,000 10,000 16,320 24,970
    Change in NWC (10,000) (16,320) (41,290)
    5
    6,000

    5
    6,000.00
    21.65
    14.64

    4 5 6
    28,800 17,280 5,760
    11.52% 11.52% 5.76%
    11,520 11,520 5,760
    82,720 94,240 100,000
    17,280 5,760 -

    4 5
    212,242 129,892
    133,100 87,846
    11,520 11,520
    67,622 30,526
    0 0
    14,201 6,410
    67,622 30,526
    53,421 24,115
    64,941 35,635
    24,910
    150,000
    21,224 12,989
    (62,514) (75,503)
    INPUT SUMMARY
    Cost of test marketing 250,000
    Current market value of proposed fac 150,000
    Cost of bowling ball machine 100,000
    Increase in net working capital: 10,000
    Production (in units) 1 2 3 4 5
    Number of unit 5,000 8000 12000 10000 6000
    Price during first year 2% per unit
    Price increase 0
    Production costs 10% per unit
    Cost increase % 0
    Annual inflation rate 0
    Working Capital 10,000
    Working Capital increase in the foll 10% of sales
    Installed cost of FA

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