X 4

Y 9

Initial outlay $ 1,000,000

Economic life 10 years, no salvage value
R 20%
Tax rate 30%
Unit sales 1,000
Price $ 10,000
VC $ 8,000
Fixed cost $ 1,500,000

a. Scenario Analysis

Base Case Lower Bound Upper Bound

Unit sales 1,000 960 1,040
Price per unit $ 10,000 $ 9,600 $ 10,400
Variable costs per unit $ 8,000 $ 7,680 $ 8,320
Fixed costs per year $ 1,500,000 $ 1,440,000 $ 1,560,000

Worst Case Base Case Best Case

Unit sales 960 1,000 1,040
Price per unit $ 9,600 $ 10,000 $ 10,400
Variable costs per unit $ 8,320 $ 8,000 $ 7,680
Fixed costs per year $ 1,560,000 $ 1,500,000 $ 1,440,000

Worst Case Base Case Best Case

Sales $ 9,216,000 $ 10,000,000 $ 10,816,000
Variable costs $ 7,987,200 $ 8,000,000 $ 7,987,200
Fixed costs $ 1,560,000 $ 1,500,000 $ 1,440,000
Depreciation $ 100,000 $ 100,000 $ 100,000
EBIT $ (431,200) $ 400,000 $ 1,288,800
Taxes $ (129,360) $ 120,000 $ 386,640
Net income $ (301,840) $ 280,000 $ 902,160
OCF
- Bottom up $ (201,840) $ 380,000 $ 1,002,160
- Top down $ (201,840) $ 380,000 $ 1,002,160
- Tax Shield $ (201,840) $ 380,000 $ 1,002,160
NPV $ (1,846,208.57) $ 593,139.39 $ 3,201,527.83
b. Sensitivity Analysis d.Degree of Operating Leverage (DOL)

VC' $ 8,500 /unit Worst Case DOL -6.728894

Base Case
Sales $ 10,000,000
Variable costs $ 8,500,000 Sensitivity -39.58
Fixed costs $ 1,500,000
Depreciation $ 100,000
EBIT $ (100,000)
Taxes $ (30,000)
Net income $ (70,000)
OCF
- Bottom up $ 30,000
- Top down $ 30,000
- Tax Shield $ 30,000
NPV $ (874,226)

c. Break Even Analysis

Cash Break Even 513.66 units

Accounting Break Even 566.18 units

Financial Break Even 638.93 units

OCF to make NPV zero $ 238,522.76

ng Leverage (DOL)
X 4
Y 9

Stock
State of Economy Prob.
ASHP BGST
Boom 30% 24% 27%
Normal 40% 5% 1%
Bust 30% -3% -1%
Weight 40% 60%

a. Expected Return, Variances, & SD Each Stocks

E(RASHP) 8.30%
E(RBGST) 8.20%

Var. ASHP 0.011661

Var. BGST 0.015216

SD ASHP 10.80%
SD. BGST 12.34%
b. Expected Return, Variances, & SD Each Portfolio

E(Rp) 8.24%

Portfolio Return:
-Boom 25.80%
-Normal 2.60%
-Burst -1.80%

Var. portfoio 0.013547

SD portfolio 11.64%
X 4
Y 9
Stocks Bonds
IRR 15% D1 Rp 5 Par
D/V 59% G 1% Ttm
E/V 41% P 150 i
Sell price
T

a. RE & RD

RE 4.33%

RD

Interpolation

Price Ytm Bond price when ytm is 4%

Rp 100,000,000 6%
Rp 105,000,000 x Value of X (Ytm) 5.26%
Rp 113,465,489.75 4%
Rp 100,000,000
8 years
6% annually
105%
35%

b. WACC 3.79%

c. Project assessment

IRR>WACC -> ACCEPT

Rp 113,465,489.75
X 4
Y 9

Yt Yt+1
Q1 Q2 Q3 Q4 Q1
200 250 300 400 476

Beginning A/R $ 90 Assumption:

A/R period 63 days
Inventory purchase 45% of next q's sales
A/P period 45 days
Wages, taxes, other expenses 34% of sales
Interest & dividends $ 20 / q
Capex $ 125 in q3
Beginning cash balance $ 90
Minmum cash balance $ 60

Cash Collections

Q1 Q2 Q3 Q4
Beginning A/R $ 90.00 $ 140.00 $ 175.00 $ 210.00
Sales in current Q $ 60.00 $ 75.00 $ 90.00 $ 120.00
Total cash collecions $ 150.00 $ 215.00 $ 265.00 $ 330.00

Cash Payments for Purchases

Q1 Q2 Q3 Q4
Purchases $ 112.50 $ 135.00 $ 180.00 $ 214.20
Beginning payables $ 45.00 $ 56.25 $ 67.50 $ 90.00
Half of purchases $ 56.25 $ 67.50 $ 90.00 $ 107.10
Cash payments for purchases $ 101.25 $ 123.75 $ 157.50 $ 197.10
1 year = 360 days

Cash Discursements

Q1 Q2 Q3 Q4
Cash payments for purchases $ 101.25 $ 123.75 $ 157.50 $ 197.10
Wages, taxes & other expenses $ 68.00 $ 85.00 $ 102.00 $ 136.00
Interest payments $ 20.00 $ 20.00 $ 20.00 $ 20.00
Capital expenditure $ 125.00
Total Cash Disbursements $ 189.25 $ 228.75 $ 404.50 $ 353.10

Cash Budget

Q1 Q2 Q3 Q4
Beginning Cash Balance $ 90.00 $ 50.75 $ 37.00 $(102.50)
Net Cash Inflow (outflow) $ (39.25) $ (13.75) $(139.50) $ (23.10)
Ending Cash Balance $ 50.75 $ 37.00 $(102.50) $(125.60)
Minimum Cash Balance $ 60.00 $ 60.00 $ 60.00 $ 60.00
Cumulative surplus (deficit) $ (9.25) $ (23.00) $(162.50) $(185.60)
X 4
Y 9

Beginning Ending Average 1 year 365 days

Inventory 8,413 11,072 9,743
A/R 4,904 5,439 5,171
A/P 6,927 7,625 7,276

Net Sales 67,312

COGS 52,827

Operating Cycle

Operating cycle = Inventory period + A/R period= 95.36 days

Inventory Period 67.32 days A/R Period 28.04 days

Inventory TO 5.42 times A/R TO 13.02 times

Cash Cycle

Cash cycle = Operating cycle - A/P period = 45.08 days

A/P period 50.27 days

A/P TO 7.26 times

X 4
Y 9

Q 200 units T 10,400 units

CC $ 59
F $ 121

Questions: Answers:
- Total Carrying Cost
- Restocking Cost Total Carrying Cost $ 5,900
- EOQ
- Order frequency Restocking Cost $ 6,292

EOQ 207 units

Order Frequency 50 times

X 4
Y 9

Credit terms net 30

R 2%

Current Policy New Policy

Price per unit $ 175 $ 175
Cost per unit $ 150 $ 150
Unit sales per month 1,000 1,213

Cost of switching $ 206,950

NPV of switching $ 59,300