peseta

Peseta Cash Flow discounted by Peseta Discount Rate

Assumption

tax rate

35.00%

Relevant Cash flows :

Investment outlay
after tax salvage value (old eq.)
after tax cost savings
Old eq depreciation's tax shields
New eq. depreciation's tax shields.
Incremental after tax cash flows

0
-61,525.00
1,179.25

-60,345.75

12,233.00
-187.25
2,153.38
14,199.13

Merck's dollar hurdle rate for a project of this type :

Annual inflation in Spain
Annual inflation in US
Merck's peseta hurdle rate :

13.00%
8.00%
3.00%
18.49%

12,255.10
-187.25
2,153.38
14,221.23

12,949.95
-187.25
2,153.38
14,916.08

13,495.30
2,153.38
15,648.68

10,129.94

8,967.26

7,939.95

Discount rate

Valuation in Peseta and Dollar

PV of total cash flows (peseta)
NPV project (peseta)
NPV project (dollar)

-60,345.75
9,059.81
71.34

11,983.86

Page 1

peseta

10

13,973.05

14,495.65

15,080.00

15,724.80

16,450.20

17,260.10

2,153.38
16,126.43

2,153.38
16,649.03

2,153.38
17,233.38

2,153.38
17,878.18

2,153.38
18,603.58

2,153.38
19,413.48

6,905.79

6,017.26

5,256.73

4,602.60

4,042.14

3,560.03

Page 2

dollar
Dollar cash flow discounted by dollar discount rate
Assumption : tax rate

35.00%

Relevant Cash flows :

0
incremental after tax cash flows-60,345.75

1
14,199.13

2
14,221.23

3
14,916.08

4
15,648.68

139.63
101.85
79.76

146.41
101.88
70.61

153.51
101.94
62.52

Discount rate
Merck's dollar hurdle rate for a project of this type13.00%
:
Annual inflation in Spain
8.00%
Annual inflation in US
3.00%
Merck's peseta hurdle rate :
18.49%

Valuation in Dollar
Projected exch. rate
Total cash flows (dollar)
PV cash flows (dollar)
NPV project (dollar)

127.00
-475.16
-475.16
71.34

133.17
106.63
94.36

Page 3

dollar

5
16,126.43

6
16,649.03

7
17,233.38

8
17,878.18

9
18,603.58

10
19,413.48

160.97
100.18
54.38

168.78
98.64
47.38

176.97
97.38
41.39

185.56
96.34
36.24

194.57
95.61
31.83

204.02
95.16
28.03

Page 4

if 1
if the spain inflation is 4% rather than 8%
Year
Cost of old equipment (8% inflation)
cost of old equpment (4% inflation)
cost of new equipment (8% inflation)
cost of new equipment (4% inflation)
cost savings
after tax cost savings

Assumption

tax rate

1
88,496.00
85,218.37
69,676.00
67,095.41
18,122.96
11,779.93

2
88,662.00
82,216.07
69,808.00
64,732.80
17,483.27
11,364.13

3
93,686.00
83,657.22
73,763.00
65,866.92
17,790.31
11,563.70

4
97,634.00
83,953.62
76,872.00
66,100.77
17,852.85
11,604.35

35.00%

Relevant Cash flows :

Investment outlay
after tax salvage value (old eq.)
after tax cost savings
Old eq depreciation's tax shields
New eq. depreciation's tax shields.
Total Cash Flows

0
-61,525.00
1,179.25

-60,345.75

11,779.93
-187.25
2,153.38
13,746.05

Merck's dollar hurdle rate for a project of this type :

Annual inflation in Spain
Annual inflation in US
Merck's peseta hurdle rate :

13.00%
4.00%
4.00%
13.00%

11,364.13
-187.25
2,153.38
13,330.25

11,563.70
-187.25
2,153.38
13,529.83

11,604.35
2,153.38
13,757.73

10,439.54

9,376.85

8,437.87

Discount rate

Valuation in Peseta and Dollar

PV of total cash flows (peseta)
NPV project (peseta)
NPV project (dollar)

-60,345.75
13,864.74
109.171199

12,164.65

Page 5

if 1

5
101,091.00
83,706.74
79,594.00
65,906.50
17,800.24
11,570.15

6
104,872.00
83,621.33
82,571.00
65,839.28
17,782.05
11,558.33

7
109,101.00
83,771.41
85,901.00
65,957.67
17,813.74
11,578.93

8
113,765.00
84,117.30
89,573.00
66,229.85
17,887.45
11,626.84

9
119,012.00
84,737.77
93,704.00
66,718.21
18,019.56
11,712.71

10
124,872.00
85,617.18
98,318.00
67,410.71
18,206.47
11,834.21

10

11,570.15

11,558.33

11,578.93

11,626.84

11,712.71

11,834.21

2,153.38
13,723.53

2,153.38
13,711.71

2,153.38
13,732.30

2,153.38
13,780.22

2,153.38
13,866.09

2,153.38
13,987.58

7,448.58

6,585.99

5,837.06

5,183.56

4,615.81

4,120.58

Page 6

if 2
there would be parity violation in year 1 and 2

Total cash flows (peseta)

PV of total cash flows (ps)
NPV project (ps)
NPV project ($)

0
-60,346
-60,346
9,060
71

1
14,199
11,984

2
14,221
10,130

3
14,916
8,967

4
15,649
7,940

185.00
76.87
60.20

193.98
76.89
53.29

203.40
76.94
47.19

Discount rate
Merck's dollar hurdle rate for a project of this type13.00%
:
Annual inflation in Spain
8.00%
Annual inflation in US
3.00%
Merck's peseta hurdle rate :
18.49%

Valuation in Dollar
Projected exch. rate
Total cash flows (dollar)
PV cash flows (dollar)
NPV project (dollar)

127.00
-475.16
-475.16
-50.14

150.00
94.66
83.77

Page 7

if 2

5
16,126
6,906

6
16,649
6,017

7
17,233
5,257

8
17,878
4,603

9
18,604
4,042

10
19,413
3,560

213.27
75.61
41.04

223.62
74.45
35.76

234.48
73.50
31.24

245.86
72.72
27.35

257.80
72.16
24.02

270.31
71.82
21.16

Page 8