Problem: 7.

6
Cashflow Worksheet
Dickinson Brothers, Inc.
Particulars

Year 0

Investment
Sales Quantity
Sales Price/Unit
Sales Revenue
Less: COGS
Less: Depreciation
EBT
Less: Tax @ 34%
EAT
Add: Depreciation
NCF

($400,000)

($400,000)

Year 1

Year 2

Year 3

Year 4

10000
$40
$400,000
($200,000)
($80,000)
$120,000
($40,800)
$79,200
$80,000
$159,200

10000
$42
$420,000
($220,000)
($80,000)
$120,000
($40,800)
$79,200
$80,000
$159,200

10000
$44.10
$441,000
($242,000)
($80,000)
$119,000
($40,460)
$78,540
$80,000
$158,540

10000
$46.31
$463,050
($266,200)
($80,000)
$116,850
($39,729)
$77,121
$80,000
$157,121

NPV = -$400,000+($159,200/1.15)+($159,200/1.15)+($158,540/1.15)+($157,121/1.15)
+($154,831/1.15)
-$400,000+$138,435+$120,378+$104,243+$89,834+76,978
$129,868

The NPV is $129,868 and Dickinson Brothers, Inc. Can proceed with the project as it is positive.

Problem: 7.7
Cashflow Worksheet
Scott Investors, Inc.
Particulars

Year 0

Investment
Side Effect
Less: Depreciation
EBT
Less: Tax @ 34%
EAT
Add: Depreciation

($500,000)

Change in NWC
After Tax C.G
NCF

Year 1

Year 2

Year 3

Year 4

$120,000
($100,000)
$20,000
($6,800)
$13,200
$6,800
$20,000

$120,000
($100,000)
$20,000
($6,800)
$13,200
$6,800
$20,000

$120,000
($100,000)
$20,000
($6,800)
$13,200
$6,800
$20,000

$120,000
($100,000)
$20,000
($6,800)
$13,200
$6,800
$20,000

$20,000

$20,000

$20,000

$20,000

$100,000
($400,000)

Capital Gain:
Cost of Asset:
Accumulated Dep.
Remaining Base

$500,000
($500,000)
$0

MKT or Selling Price:

Remaining Base:
Capital Gain

$100,000
$0
$100,000

Capital Gain:
Tax on CG @ 34%
After Tax CG

$100,000
($34,000)
$66,000

NPV = -$400,000+($20,000/1.12)+($20,000/1.12)+($20,000/1.12)+($20,000/1.12)
-($14,000/1.12)
-$400,000+$17,857+$15,944+$14,236+$12,710-7,944
-$347,197
It is not worthwhile to buy the computer as the Net Present Value is negative.

Problem: 7.10

Particulars

Year 0

Cashflow Worksheet
Royal Dutch Petroleum
Year 1
Year 2

Investment
Sales Revenue
COGS & Op. Exp
Less: Depreciation
EBT
Less: Tax @ 35%
EAT
Add: Depreciation

($2,000,000)

Change in NWC
Cash Inflow on CL
NCF

($100,000)
($2,100,000)

Year 3

$1,200,000
($300,000)
($400,000)
$500,000
($175,000)
$325,000
$400,000
$725,000

$1,200,000
($300,000)
($400,000)
$500,000
($175,000)
$325,000
$400,000
$725,000

$1,200,000
($300,000)
($400,000)
$500,000
($175,000)
$325,000
$400,000
$725,000

$725,000

$725,000

$725,000

Capital Gain/Loss:
Cost of Asset:
Accumulated Dep.
Remaining Base

$2,000,000
($1,600,000)
$400,000

Selling Price:
Remaining Base:
Capital Loss

$150,000
($400,000)
($250,000)

Selling Price:
Tax savings on CL
Cash inflow on CL

$150,000
$87,500
$237,500

NPV = -$2,100,000+($725,000/1.1655)+($725,000/1.1655)+($725,000/1.1655)
+($1,062,500/1.1655)
-$2,100,000+$622,051+$533,720+$457,932+$575,811
$89,514

Royal Dutch Petroleum can proceed with the project as the NPV is positive.

Year 4

$1,200,000
($300,000)
($400,000)
$500,000
($175,000)
$325,000
$400,000
$725,000
$100,000
$237,500
$1,062,500

Problem: 7.26
Cashflow Worksheet
Sony International
Particulars
Investment
Production in Unit
Sales Price (Nom.)
Sales Revenue
Labor Cost (Nom.)
Energy Cost (Nom.)
Less: Depreciation
EBT
Less: Tax @ 34%
EAT
Add: Depreciation
NCF

Year 0

Year 1

Year 2

Year 3

Year 4

200,000
$420
$84,000,000
($34,420,050)
($1,168,650)
($8,000,000)
$40,411,300
($13,739,842)
$26,671,458
$8,000,000
$34,671,458

200,000
$420
$84,000,000
($36,858,780)
($1,264,127)
($8,000,000)
$37,877,093
($12,878,212)
$24,998,881
$8,000,000
$32,998,881

150,000
$420
$63,000,000
($39,479,643)
($1,368,660)
($8,000,000)
$14,151,697
($4,811,577)
$9,340,120
$8,000,000
$17,340,120

($32,000,000)
100,000
$420
$42,000,000
($32,130,000)
($1,081,500)
($8,000,000)
$788,500
($268,090)
$520,410
$8,000,000
($32,000,000)
$8,520,410

Labor Cost:
Labor input, in hour
Labor cost per hour(Real)
Labor cost per hour(Nominal)
Labor cost (Nominal)
Energy Cost:
Energy Input, physical units
Energy Cost per physical unit (Real)
Energy Cost/ physical unit (Nominal)
Energy Cost (Nominal)
Nominal Disc. Rate:

Year 1
Year 2
Year 3
Year 4
2,000,000
2,000,000
2,000,000
2,000,000
$15.30
$15.61
$15.92
$16.24
$16.07
$17.21
$18.43
$19.74
$32,130,000 $34,420,050 $36,858,780 $39,479,643
Year 1
200,000
$5.15
$5.41
$1,081,500

Year 2
200,000
$5.30
$5.84
$1,168,650

Year 3
200,000
$5.46
$6.32
$1,264,127

Year 4
200,000
$5.63
$6.84
$1,368,660

[(1+.08)(1+.05)-1] = 13.40%

NPV = -$32,000,000+($8,520,410/1.1340)+($34,671,458/1.1340)+($32,998,881/1.1340)
+($17,340,120/1.1340)
-$32,000,000+$7,513,589+$26,961,621+$22,628,723+$10,485,759
$35,589,692
The NPV is $35,589,692 and Sony International Can proceed with the project as it is positive.

Year 5

10000
$48.62
$486,200
($292,820)
($80,000)
$113,380
($38,549)
$74,831
$80,000
$154,831

Year 5

$120,000
($100,000)
$20,000
($6,800)
$13,200
$6,800
$20,000
($100,000)
$66,000
($14,000)