Cash Flows:

Labour intensive method

Initial plant and equipment 900 000$
Sell equipment (net of taxes) 381 000$
Debugging cost 50 000$
Expected production (first year) 1 500 000$
 Risk free rate: about 6%
Silicone Project values
Capital intensive method Price per unit: 1.9$ $ 1.90
3 300 000$
1 384 000$
100 000$
700 000$
Scenario Summary
Current Values: Sales price
Changing Cells:
Sale_Price 1.9 1.7
Result Cells:
NVP_1 71.11 € -1,150.99 €
PAy_Back_Period_1 11.842 Doesn't exist
Profitability_Index_1 1.08 -0.28
IRR_1 21% #NUM!
NPV_2 1,117.27 € -1,245.44 €
Pay_Back_Period_2 5.915 Doesn't exist
Profibality_Idex 2.24 -0.38
IRR_2 21% #NUM!
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
Scenario Summary
Current Values: Sales price
Changing Cells:
Sale_Price 1.9 1.7
Result Cells:
20% NPV_1 71.00 € -1,151.09 €
Profitability_Index_1 1.08 -0.28
8% NPV_2 1,117.11 € -1,245.58 €
Profitability_Index_2 2.24 -0.38
12% NPV_3 642.38 € -1,204.64 €
Profitability_Index_3 1.71 -0.34
16% NPV_4 310.22 € -1,174.34 €
Profitability_Index_4 1.34 -0.30
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
Example 1 Discount rate
Example 2 (8% discount rate) Discount Rate

Analysis of Labour-Intensive Alternative for Silicone-X

Year 0

Investment
Plant and equipment 900.00 €

Change in Net Working Capital

Demand (thousands of pounds)
Capacity (thousands of pounds)
Sales (thousands of pounds)
Sales price/unit

Variable costs/unit
Manufacturing
Marketing
Total variable costs/unit

Fixed Costs
Overhead
Depreciation
Start-up costs
Total fixed costs

Sales Revenue
(-) Total Variable Costs
(-) Total Fixed Costs
Profit before taxes
(-) Taxes (tax rate 50 %)
Net Operating Profit after taxes

Cash flow from operations

Profit after tax + depreciation
(-) Capital Expenditures - 900.00 €
(-) Change in Working Capital
Free Cash Flow - 900.00 €
Terminal Value

N.A. = not available

Discount Cash Flow

Example 1 (20 % discount rate)

Discounted CF: $ -900
Cumulative CF: $ -900

Example 2 (8% discount rate)

Discounted CF: $ -900
Cumulative CF: $ -900

Example 3 (12 % discount rate)

Discounted CF: $ -900
Cumulative CF: $ -900

Example 4 (16% discount rate)

Discounted CF: $ -900
Cumulative CF: $ -900

Result overview

NPV
example 1:

Pay-back period
Profitability idex
IRR
 0.2
0.08 Sales Price 1.9
0.12
0.16

ternative for Silicone-X (dollars in thousands, except per unit-data)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

140.00 € 14.00 € 15.00 € 17.00 € 20.00 € 21.00 €

1200 1320 1452 1597 N.A N.A
600 1500 1500 1500 1500 1500
600 1320 1452 1500 1500 1500
1.90 € 1.90 € 1.90 € 1.90 € 1.90 € 1.90 €

1.30 € 1.30 € 1.30 € 1.30 € 1.30 € 1.30 €

0.10 € 0.10 € 0.10 € 0.10 € 0.10 € 0.10 €
1.40 € 1.40 € 1.40 € 1.40 € 1.40 € 1.40 €

210.00 € 210.00 € 210.00 € 210.00 € 210.00 € 210.00 €

60.00 € 60.00 € 60.00 € 60.00 € 60.00 € 60.00 €
50.00 € - € - € - € - € - €
320.00 € 270.00 € 270.00 € 270.00 € 270.00 € 270.00 €

1,140 € 2,508 € 2,759 € 2,850 € 2,850 € 2,850 €

840.00 € 1,848.00 € 2,033.00 € 2,100.00 € 2,100.00 € 2,100.00 €
320.00 € 270.00 € 270.00 € 270.00 € 270.00 € 270.00 €
- 20.00 € 390.00 € 455.80 € 480.00 € 480.00 € 480.00 €
10.00 € - 195.00 € - 228.00 € - 240.00 € - 240.00 € - 240.00 €
- 10.00 € 195.00 € 227.80 € 240.00 € 240.00 € 240.00 €

50.00 € 255.00 € 287.80 € 300.00 € 300.00 € 300.00 €

- € - € - € - € - € - €
- 140.00 € - 14.00 € - 15.00 € - 17.00 € - 20.00 € - 20.00 €
- 90.00 € 241.00 € 272.80 € 283.00 € 280.00 € 280.00 €
381.00 € 381.00 €
$ -75 $ 167 $ 158 $ 136 $ 113 $ 94
$ -975 $ -808 $ -650 $ -513 $ -401 $ -307

$ -83 $ 207 $ 217 $ 208 $ 191 $ 176

$ -983 $ -777 $ -560 $ -352 $ -162 $ 15

$ -80 $ 192 $ 194 $ 180 $ 159 $ 142

$ -980 $ -788 $ -594 $ -414 $ -255 $ -113

$ -78 $ 179 $ 175 $ 156 $ 133 $ 115

$ -978 $ -798 $ -624 $ -467 $ -334 $ -219
Result overview

71.00 € NPV 1,117.11 €

example 2:

11.846 Pay-back period 5.916

1.08 Profitability Idex 2.24
21% IRR 21%
 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13

22.00 € 23.00 € 24.00 € 25.00 € 26.00 € 27.00 € 28.00 €

N.A N.A N.A N.A N.A N.A N.A
1500 1500 1500 1500 1500 1500 1500
1500 1500 1500 1500 1500 1500 1500
1.90 € 1.90 € 1.90 € 1.90 € 1.90 € 1.90 € 1.90 €

1.30 € 1.30 € 1.30 € 1.30 € 1.30 € 1.30 € 1.30 €

0.10 € 0.10 € 0.10 € 0.10 € 0.10 € 0.10 € 0.10 €
1.40 € 1.40 € 1.40 € 1.40 € 1.40 € 1.40 € 1.40 €

210.00 € 210.00 € 210.00 € 210.00 € 210.00 € 210.00 € 210.00 €

60.00 € 60.00 € 60.00 € 60.00 € 60.00 € 60.00 € 60.00 €
- € - € - € - € - € - € - €
270.00 € 270.00 € 270.00 € 270.00 € 270.00 € 270.00 € 270.00 €

2,850 € 2,850 € 2,850 € 2,850 € 2,850 € 2,850 € 2,850 €

2,100.00 € 2,100.00 € 2,100.00 € 2,100.00 € 2,100.00 € 2,100.00 € 2,100.00 €
270.00 € 270.00 € 270.00 € 270.00 € 270.00 € 270.00 € 270.00 €
480.00 € 480.00 € 480.00 € 480.00 € 480.00 € 480.00 € 480.00 €
- 240.00 € - 240.00 € - 240.00 € - 240.00 € - 240.00 € - 240.00 € - 240.00 €
240.00 € 240.00 € 240.00 € 240.00 € 240.00 € 240.00 € 240.00 €

300.00 € 300.00 € 300.00 € 300.00 € 300.00 € 300.00 € 300.00 €

- € - € - € - € - € - € - €
- 20.00 € - 20.00 € - 20.00 € - 20.00 € - 20.00 € - 20.00 € - 20.00 €
280.00 € 280.00 € 280.00 € 280.00 € 280.00 € 280.00 € 280.00 €
381.00 € 381.00 € 381.00 € 381.00 € 381.00 € 381.00 € 381.00 €
$ 78 $ 65 $ 54 $ 45 $ 38 $ 31 $ 26
$ -229 $ -164 $ -109 $ -64 $ -27 $ 5 $ 31

$ 163 $ 151 $ 140 $ 130 $ 120 $ 111 $ 103

$ 178 $ 330 $ 470 $ 599 $ 719 $ 831 $ 934

$ 127 $ 113 $ 101 $ 90 $ 80 $ 72 $ 64

$ 13 $ 126 $ 227 $ 317 $ 398 $ 470 $ 534

$ 99 $ 85 $ 74 $ 63 $ 55 $ 47 $ 41
$ -120 $ -35 $ 39 $ 102 $ 157 $ 204 $ 245
Result overview

Result overview

NPV 642.38 € NPV 310.22 €

example 3:

example 4:

Pay-back peri 6.896 Pay-back peri 8.471

Profitability Id 1.71 Profitability I 1.34
IRR 21% IRR 21%
 Year 14 Year 15

Method 1: High labor intensity with lower initial outlay

29.00 € 30.00 €
N.A N.A
1500 1500
1500 1500
1.90 € 1.90 €

1.30 € 1.30 €
0.10 € 0.10 €
1.40 € 1.40 €

210.00 € 210.00 €
60.00 € 60.00 €
- € - €
270.00 € 270.00 €

2,850 € 2,850 €
2,100.00 € 2,100.00 €
270.00 € 270.00 €
480.00 € 480.00 €
- 240.00 € - 240.00 €
240.00 € 240.00 €

300.00 € 300.00 €
- € - €
- 20.00 € - 20.00 €
280.00 € 280.00 €
381.00 € 381.00 €
$ 22 $ 18
$ 53 $ 71

$ 95 $ 88
$ 1,029 $ 1,117

$ 57 $ 51
$ 591 $ 642

$ 35 $ 30
$ 280 $ 310
nitial outlay
Scenario Summary
Current Values: Changing Price
Changing Cells:
$D$15 1.9 € 1.7 €
$E$15 1.9 € 1.7 €
$F$15 1.9 € 1.7 €
$G$15 1.9 € 1.7 €
$H$15 1.9 € 1.7 €
$I$15 1.9 € 1.7 €
$J$15 1.9 € 1.7 €
$K$15 1.9 € 1.7 €
$L$15 1.9 € 1.7 €
$M$15 1.9 € 1.7 €
$N$15 1.9 € 1.7 €
$O$15 1.9 € 1.7 €
$P$15 1.9 € 1.7 €
$Q$15 1.9 € 1.7 €
Result Cells:
$C$47 $ -1,669 $ -2,070
$C$48 Does not Exist Does not Exist
$C$49 0.12 -0.09
$C$50 14% 9%
$G$47 1,628.30 € 306.93 €
$G$48 9.29613450816 12.7846103306
$G$49 1.86 1.16
$G$50 14% 9%
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
Scenario Summary
Current Values: Changing Price
Changing Cells:
Sales Price 1.9 1.7
Result Cells:
NVP_1 $ -1,669 $ -2,070
Pay_Back_Period_1 Does not Exist Does not Exist
Profitability_Index_1 0.12 -0.09
IRR_1 14% 9%
NPV_2 1,628.30 € 306.93 €
Pay_Back_Period_2 9.29613450816 12.78461033061
Profibality_Idex 1.86 1.16
IRR_2 14% 9%
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
Example 1 Discount rate 0.2
Example 2 (8% discount rate) Discount Rate 0.08

Analysis of Capital-Intensive Alternative for Silicone-X (dollars in thousands, excep

Year 0 Year 1 Year 2 Year 3
Investment
Plant and equipment 1,900 € 1,400 €
Change in Net Working Capital 160 € 11 €
Demand (thousand of pounds) 1,320 € 1,425 €
Capacity (thousand of pounds) 700 € 2,000 €
Sales (thousand of pounds) 700 € 1,452 €
Sales price/unit 1.9 € 1.9 €
Variable costs/unit
Manufacturing 1.05 € 1.05 €
Selling 0.10 € 0.10 €
Total variable costs/units 1.15 € 1.15 €
Fixed costs
Overhead 110 € 110 €
Depreciation 167 € 167 €
Start-up costs 100 €
Total fixed costs 377 € 277 €
Sales Revenue 1,330 € 2,759 €
Total variable costs 805 € 1,670 €
Total fixed costs 377 € 277 €
Profit Before Taxes 148 € 812 €
Taxes (tax rate 50%) 74 € 406 €
Net Operating Profit after taxes 74.00 € 406.00 €
Cash Flow from operations
Profit after tax + depreciation - € 241.00 € 573.00 €
Capital Expenditures - 1,900.00 € - 1,400.00 € - € - €
Change in Working Capital - € - 160.00 € - 11.00 €
Free Cash Flow - 1,900.00 € - 1,400.00 € 81.00 € 562.00 €
Terminal Value

Example 1 (20 % discount rate)

Discounted CF: - 1,900.00 € - 1,166.67 € 56.25 € 325.23 €
Cumulative CF: - 1,900.00 € - 3,066.67 € - 3,010.42 € - 2,685.19 €

Example 2 (8% discount rate)

Discounted CF: - 1,900.00 € - 1,296.30 € 69.44 € 446.13 €
Cumulative CF: - 1,900.00 € - 3,196.30 € - 3,126.85 € - 2,680.72 €

NPV $ -1,669
example 1:

example 2:
overview

overview
Result

Result
example 1:

example 2:
overview

overview
Result

Result
Pay-back period Does not Exist
Profitability index 0.12
IRR 14%

€ 0.0
#DIV/0!
#DIV/0!
Err:523
 Sale Price 1.9

rs in thousands, except per unit-data)

Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

17 € 20 € 24 € 30 € 30 € 30 €
1,597 € 1,757 € 1,933 € 2,125 € 2,125 € 2,125 €
2,000 € 2,000 € 2,000 € 2,000 € 2,000 € 2,000 €
1,597 € 1,757 € 1,933 € 2,000 € 2,000 € 2,000 €
1.9 € 1.9 € 1.9 € 1.9 € 1.9 € 1.9 €

1.05 € 1.05 € 1.05 € 1.05 € 1.05 € 1.05 €

0.10 € 0.10 € 0.10 € 0.10 € 0.10 € 0.10 €
1.15 € 1.15 € 1.15 € 1.15 € 1.15 € 1.15 €

110 € 110 € 110 € 110 € 110 € 110 €

167 € 167 € 167 € 167 € 167 € 167 €

277 € 277 € 277 € 277 € 277 € 277 €

3,034 € 3,338 € 3,673 € 3,800 € 3,800 € 3,800 €
1,837 € 2,021 € 2,223 € 2,300 € 2,300 € 2,300 €
277 € 277 € 277 € 277 € 277 € 277 €
921 € 1,041 € 1,173 € 1,223 € 1,223 € 1,223 €
460 € 520 € 586 € 612 € 612 € 612 €
460.37 € 520.37 € 586.38 € 611.50 € 611.50 € 611.50 €

627.37 € 687.37 € 753.38 € 778.50 € 778.50 € 778.50 €

- € - € - € - € - € - €
- 17.00 € - 20.00 € - 24.00 € - 30.00 € - 30.00 € - 30.00 €
610.37 € 667.37 € 729.38 € 748.50 € 748.50 € 748.50 €

294.36 € 268.20 € 244.27 € 208.89 € 174.08 € 145.06 €

- 2,390.83 € - 2,122.63 € - 1,878.36 € - 1,669.47 € - 1,495.39 € - 1,350.33 €

448.64 € 454.20 € 459.63 € 436.74 € 404.39 € 374.44 €

- 2,232.07 € - 1,777.87 € - 1,318.24 € - 881.50 € - 477.11 € - 102.67 €
Conclusion: Comparing both scenarios, It´s able to see that the scenario with
20% interest rate is not viable to the company, because it has a negative NPV (-
NPV1670€), which means that it doesn´t
1,628.30 € have a pay back period and the profitability
index is between 0 and 1. On the other side, the second scenario, the one with
8% looks much more attractive to the company, because the NPV is positive
(+1629,51€), it has a pay back period of 9,3 years and a profitability index of
1,86. Therefore, between those two scenarios, the second one is the most viable
to the company.
 Conclusion: Comparing both scenarios, It´s able to see that the scenario with
20% interest rate is not viable to the company, because it has a negative NPV (-
1670€), which means that it doesn´t have a pay back period and the profitability
index is between 0 and 1. On the other side, the second scenario, the one with
Pay-back period
8% looks much more 9.29613450816
attractive to the company, because the NPV is positive
(+1629,51€),
Profitability Indexit has a pay back1.86
period of 9,3 years and a profitability index of
IRR 1,86. Therefore, between those 14%two scenarios, the second one is the most viable
to the company.
 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15

Method two: Capital-int

30 € 30 € 30 € 30 € 30 € 30 € costs but lower ma
2,125 € 2,125 € 2,125 € 2,125 € 2,125 € 2,125 €
2,000 € 2,000 € 2,000 € 2,000 € 2,000 € 2,000 €
2,000 € 2,000 € 2,000 € 2,000 € 2,000 € 2,000 €
1.9 € 1.9 € 1.9 € 1.9 € 1.9 € 1.9 €

1.05 € 1.05 € 1.05 € 1.05 € 1.05 € 1.05 €

0.10 € 0.10 € 0.10 € 0.10 € 0.10 € 0.10 €
1.15 € 1.15 € 1.15 € 1.15 € 1.15 € 1.15 €

110 € 110 € 110 € 110 € 110 € 110 €

167 € 167 € 167 € 167 € 167 € 167 €

277 € 277 € 277 € 277 € 277 € 277 €

3,800 € 3,800 € 3,800 € 3,800 € 3,800 € 3,800 €
2,300 € 2,300 € 2,300 € 2,300 € 2,300 € 2,300 €
277 € 277 € 277 € 277 € 277 € 277 €
1,223 € 1,223 € 1,223 € 1,223 € 1,223 € 1,223 €
612 € 612 € 612 € 612 € 612 € 612 €
611.50 € 611.50 € 611.50 € 611.50 € 611.50 € 611.50 €

778.50 € 778.50 € 778.50 € 778.50 € 778.50 € 778.50 €

- € - € - € - € - € - €
- 30.00 € - 30.00 € - 30.00 € - 30.00 € - 30.00 € - 30.00 €
748.50 € 748.50 € 748.50 € 748.50 € 748.50 € 748.50 €

120.89 € 100.74 € 83.95 € 69.96 € 58.30 € 48.58 €

- 1,229.44 € - 1,128.70 € - 1,044.75 € - 974.79 € - 916.50 € - 867.91 €

346.70 € 321.02 € 297.24 € 275.22 € 254.84 € 235.96 €

244.03 € 565.05 € 862.29 € 1,137.51 € 1,392.35 € 1,628.30 €
Method two: Capital-intensive with higher initial
costs but lower manufacturing costs
Example 1 Discount rate 0.2
Example 2 (8% discount rate) Discount Rate 0.08

Analysis of Capital-Intensive Alternative for Silicone-X (dollars in thousands, except per unit-data)
Year 0 Year 1 Year 2 Year 3
Investment
Plant and equipment 900 €
Change in Net Working Capital $ 140.00 $ 14.00 $ 15.00
Demand (thousand of pounds) 1200 1320 1452
Capacity (thousand of pounds) 600 1500 1500
Sales (thousand of pounds) 600 1320 1452
Sales price/unit $ 1.90 $ 1.90 $ 1.90
Variable costs/unit
Manufacturing 1.30 € 1.30 € 1.30 €
Selling 0.10 € 0.10 € 0.10 €
Total variable costs/units 1.40 € 1.40 € 1.15 €
Fixed costs
Overhead $ 210.00 $ 210.00 $ 210.00
Depreciation $ 60.00 $ 60.00 $ 60.00
Start-up costs $ 50.00 $ - $ -
Total fixed costs $ 320.00 270 € 270 €
Sales Revenue 2,508 € 2,759 €
Total variable costs 840 € 1,848 € 1,670 €
Total fixed costs 320 € 270 € 270 €
Profit Before Taxes 390 € 819 €
Taxes (tax rate 50%) 195 € 409 €
Net Operating Profit after taxes 195 € 409 €
Cash Flow from operations
Profit after tax + depreciation $ - $ 241 $ 573
Capital Expenditures $ -1,900 $ -1,400 $ - $ -
Change in Working Capital $ - $ -160 $ -11
Free Cash Flow $ -1,900 $ -1,400 $ 81 $ 562
Terminal Value

Example 1 (20 % discount rate)

Discounted CF: $ -1,900 $ -1,167 $ 56 $ 325
Cumulative CF: -1900 $ -3,067 $ -3,010 $ -2,685

Example 2 (8% discount rate)

Discounted CF: -1900 $ -1,296 $ 69 $ 446
Cumulative CF: -1900 $ -3,196 $ -3,127 $ -2,681

NPV
example 1:
overview
Result
example 1:
Pay-back period

overview
Profitability value

Result
IRR
per unit-data)
Year 4 Year 5-15

$ 17.00 $ 20.00
1597 N.A
1500 1500
1500 1500
$ 1.90 $ 1.90

1.30 € 1.30 €
0.10 € 0.10 €
1.15 € 1.15 €

$ 210.00 $ 210.00
$ 60.00 $ 60.00
$ - $ -
270 € 270 €
2,850 € 2,850 €
1,725 € 1,725 €
270 € 270 €
855 € 855 €
428 € 428 €
428 € 428 €

$ 627 $ 687
$ - $ -
$ -17 $ -20
$ 610 $ 667

$ 294 #VALUE!
$ -2,391 #VALUE!

$ 448 #VALUE! $ - $ -
$ -2,232 #VALUE! #VALUE! #VALUE!
Scenario Summary
Current Values: Sales_Price
Changing Cells:
Sales Price 1.9 1.7
Result Cells:
$F$52 - 2,685.19 € - 2,817.82 €
$D$70 $ -868 $ -1,483
$D$72 0.54 0.22
$H$70 1,628.30 € 306.93 €
$H$72 1.86 1.16
$D$76 $ 471 $ -527
$D$78 1.25 0.72
$H$76 -317.23 € -1,091.61 €
$H$78 0.83 0.43
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
Scenario Summary
Current Values: Sales_Price
Changing Cells:
$H$2 1.9 1.7
Result Cells:
$F$52 - 2,685.19 € - 2,817.82 €
$D$70 $ -868 $ -1,483
$D$72 0.54 0.22
$H$70 1,628.30 € 306.93 €
$H$72 1.86 1.16
$D$76 $ 471 $ -527
$D$78 1.25 0.72
$H$76 -317.23 € -1,091.61 €
$H$78 0.83 0.43
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
 Discount rate (Example 1) 20%
Discount Rate (Example 2) 8% Sales Price 1.9
Discount rate (Example 3) 12%
Discount Rate (Example 4) 16%

Analysis of Capital-Intensive Alternative for Silicone-X (dollars in thousands, except per unit-da
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Investment

Plant and 1,900 € 1,400 €

Change in Net Working Capital 160 € 11 € 17 € 20 € 24 €
Demand (thousand of pounds) 1320 1425 1597 1757 1933
Capacity (thousand of pounds) 700 2000 2000 2000 2000
Sales (thousand of pounds) 700 1452 1597 1757 1933
Sales price/unit 1.9 € 1.9 € 1.9 € 1.9 € 1.9 €

Variable costs/unit

Manufacturing 1.05 € 1.05 € 1.05 € 1.05 € 1.05 €

Selling 0.10 € 0.10 € 0.10 € 0.10 € 0.10 €
Total variable costs/units 1.15 € 1.15 € 1.15 € 1.15 € 1.15 €

Fixed costs
Overhead 110 € 110 € 110 € 110 € 110 €
Depreciation 167 € 167 € 167 € 167 € 167 €
Start-up costs 100 €
Total fixed costs 377 € 277 € 277 € 277 € 277 €

Sales Revenue 1,330 € 2,759 € 3,034 € 3,338 € 3,673 €

Total variable costs 805 € 1,670 € 1,837 € 2,021 € 2,223 €

Total fixed costs 377 € 277 € 277 € 277 € 277 €
Profit Before Taxes 148 € 812 € 921 € 1,041 € 1,173 €
Taxes (tax rate 50%) 74 € 406 € 460 € 520 € 586 €
Net Operating Profit after taxes 74.00 € 406.00 € 460.37 € 520.37 € 586.38 €

Cash Flow from operations

Profit after tax + depr - € 241.00 € 573.00 € 627.37 € 687.37 € 753.38 €

Capital Exp ### - 1,400.00 € - € - € - € - € - €
Change in Working Ca - € -160.00 € - 11.00 € - 17.00 € - 20.00 € - 24.00 €
Free Cash ### - 1,400.00 € 81.00 € 562.00 € 610.37 € 667.37 € 729.38 €
Terminal Value

Example 1 (20 % discount rate)

Discounted ### - 1,166.67 € 56.25 € 325.23 € 294.36 € 268.20 € 244.27 €
Cumulative ### - 3,066.67 € ### ### ### - 2,122.63 € ###

Example 2 (8% discount rate)

Discounted ### - 1,296.30 € 69.44 € 446.13 € 448.64 € 454.20 € 459.63 €
Cumulative ### - 3,196.30 € ### ### ### - 1,777.87 € ###

Example 3 (12% discount rate)

Discounted ### - 1,250.00 € 64.57 € 400.02 € 387.90 € 378.69 € 369.52 €
Cumulative ### - 3,150.00 € ### ### ### - 1,918.82 € ###

Example 4 (16% discount rate)

Discounted ### - 1,206.90 € 60.20 € 360.05 € 337.10 € 317.75 € 299.37 €
Cumulative ### - 3,106.90 € ### ### ### - 2,031.80 € ###

NPV $ -868 NPV 1,628.30 €

example 1:

example 2:
overview

overview

Pay-back p Does not Exist Pay-back p 9.296134508

Result

Result

Profitabili 0.54 Profitabili 1.86

IRR 14% IRR 14%

NPV $ 471 NPV -317.23 €

example 3:

example 4:
overview

overview

Pay-back p 11.948944505 Pay-back pDoes not exist

Result

Result

Profitabili 1.25 Profitabili 0.83

IRR 14% IRR 14%
housands, except per unit-data)
Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15

30 € 30 € 30 € 30 € 30 € 30 € 30 € 30 € 30 €
2125 2125 2125 2125 2125 2125 2125 2125 2125
2000 2000 2000 2000 2000 2000 2000 2000 2000
2000 2000 2000 2000 2000 2000 2000 2000 2000
1.9 € 1.9 € 1.9 € 1.9 € 1.9 € 1.9 € 1.9 € 1.9 € 1.9 €

1.05 € 1.05 € 1.05 € 1.05 € 1.05 € 1.05 € 1.05 € 1.05 € 1.05 €

0.10 € 0.10 € 0.10 € 0.10 € 0.10 € 0.10 € 0.10 € 0.10 € 0.10 €
1.15 € 1.15 € 1.15 € 1.15 € 1.15 € 1.15 € 1.15 € 1.15 € 1.15 €

110 € 110 € 110 € 110 € 110 € 110 € 110 € 110 € 110 €

167 € 167 € 167 € 167 € 167 € 167 € 167 € 167 € 167 €

277 € 277 € 277 € 277 € 277 € 277 € 277 € 277 € 277 €

3,800 € 3,800 € 3,800 € 3,800 € 3,800 € 3,800 € 3,800 € 3,800 € 3,800 €

2,300 € 2,300 € 2,300 € 2,300 € 2,300 € 2,300 € 2,300 € 2,300 € 2,300 €

277 € 277 € 277 € 277 € 277 € 277 € 277 € 277 € 277 €
1,223 € 1,223 € 1,223 € 1,223 € 1,223 € 1,223 € 1,223 € 1,223 € 1,223 €
612 € 612 € 612 € 612 € 612 € 612 € 612 € 612 € 612 €
611.50 € 611.50 € 611.50 € 611.50 € 611.50 € 611.50 € 611.50 € 611.50 € 611.50 €

778.50 € 778.50 € 778.50 € 778.50 € 778.50 € 778.50 € 778.50 € 778.50 € 778.50 €

- € - € - € - € - € - € - € - € - €
- 30.00 € - 30.00 € - 30.00 € - 30.00 € - 30.00 € - 30.00 € - 30.00 € - 30.00 € - 30.00 €
748.50 € 748.50 € 748.50 € 748.50 € 748.50 € 748.50 € 748.50 € 748.50 € 748.50 €
208.89 € 174.08 € 145.06 € 120.89 € 100.74 € 83.95 € 69.96 € 58.30 € 48.58 €
### ### ### ### ### ### -974.79 € -916.50 € -867.91 €

436.74 € 404.39 € 374.44 € 346.70 € 321.02 € 297.24 € 275.22 € 254.84 € 235.96 €

-881.50 € -477.11 € -102.67 € 244.03 € 565.05 € 862.29 € ### ### ###

338.58 € 302.31 € 269.92 € 241.00 € 215.18 € 192.12 € 171.54 € 153.16 € 136.75 €

### -908.40 € -638.49 € -397.49 € -182.31 € 9.81 € 181.35 € 334.50 € 471.25 €

264.84 € 228.31 € 196.82 € 169.67 € 146.27 € 126.09 € 108.70 € 93.71 € 80.78 €

### ### ### -872.79 € -726.52 € -600.42 € -491.72 € -398.01 € -317.23 €

Conclusion: Comparing both scenarios, It´s able to see that the scenario with
20% interest rate is not viable to the company, because it has a negative NPV (-
868€), which means that it doesn´t have a pay back period and the profitability
index is between 0 and 1. On the other side, the second scenario, the one with
8% looks much more attractive to the company, because the NPV is positive
(+1628,30€), it has a pay back period of 9,3 years and a profitability index of
1,86. However, this method does not match with the return criteria of the
company, because at 16% return rate, the NPV is negative (-317,23€) which can
indicate that the Cappital- intensive method is not a suitable method.
Reynolds tend to demand a higher return for projects
Doesn't like to take a lof of risk wich is good for the stakeholders
However it doens't aproved a lot of projects which can reduce the overall return

Things that Soderberg dooesn't like about Reynolds analysis,

-only look at the return which will make the Capital itensive project not be acceptable however it is
the safest way to start because it riqueres a lot more sales in order to break even
-It is expecteded about 0,20 cut and that will made the
rn

eptable however it is
ven