Discount rate

25%

Year
0
1
2
3
4
5
6
PV of cashflows
NPV of project

Cashflow
-1,000
100
200
300
400
500
600
$846.57

#VALUE!

-$153.43

#VALUE!

19.71%

#VALUE!

IRR of project
Take project?

No

#VALUE!

Discount rate

12%

Year
0
1
2
3
4
5

NPV
IRR

Project A
Project B
-500
-500
167
200
180
250
160
170
100
25
100
30

$26.78
14.38%

Year
0
1
2
3
4
5

$31.78
15.45%

Differential
Project A
Project B
cash flow
-500
-500
0
167
200
-33
180
250
-70
160
170
-10
100
25
75
100
30
70
9.71%

#VALUE!

#VALUE!

The financial advisor's false calculation

Discount rate

12%

Rearranging the shop

Loss of business during renovation
Payment to the financial advisor
Total

-40,000
-15,000
-12,000
-67,000 #VALUE!

Annual earnings from the sport department

Loss of earnings from the tie department
Loss of earnings from other departments
Additional worker for the sports department
Municipality Tax (20m* $750per m)
Total

75,000
-20,000
-15,000
-18,000
-15,000
7,000 #VALUE!

NPV

-8,667 #VALUE!

The right calculation

Discount rate

12%

Rearranging the shop

loss of business during renovation
Payment to the financial advisor
Total

-40,000
-15,000
0
-55,000 #VALUE!

Annual earnings from the sport department

loss of earnings from the tie department
loss of earnings from other departments
Additional worker for the sports department
Municipality Tax (20m* $750per m)
Total

75,000
-20,000
-15,000
-18,000
0
22,000 #VALUE!

NPV
IRR

128,333 #VALUE!
40.00% #VALUE!

The financial advisor was wrong. Fixed costs should not be taken into consideration.
The right calculation for minimum price is:

Chair department

Table department

No. of units
Cost of material
Cost of Labor
Total cost

100,000
$80,000.00
$40,000.00
$120,000.00

20,000
$35,000.00
$20,000.00
$55,000.00

Minimum price per unit

$1.20

$2.75

#VALUE!

Discount rate
Corporate tax
Machine's life span

8%
35%
10

Investment

100,000

Annual saving
Cost of new worker
Depreciation
Taxes
Net income
Add back depreciation
Annual cash flow

50,000
-20,000
-10,000
-7,000 #VALUE!
13,000 #VALUE!
10000
23,000 #VALUE!

Year
0
1
2
3
4
5
6
7
8
9
10
NPV

Cash Flow
-100,000 #VALUE!
23,000
23,000 #VALUE!
23,000
23,000
23,000
23,000
23,000
23,000
23,000
23,000
$54,331.87

#VALUE!

Discount rate
Tax rate

11%
34%
Year
0
1
2
3
4
5
6
7
NPV

Year
0
1
2
3
4
5
6
7
8
NPV
Net Gain

Investment
-10,500

EBDT
3,000
3,000
3,000
2,500
2,500
2,500
2,500

$484.77

Investment
-10,500

Net income
1,980
1,980
1,980
1,650
1,650
1,650
1,650

Depreciation
1,500
1,500
1,500
1,500
1,500
1,500
1,500

510
510
510
510
510
510
510

depreciation

Depreciation
tax shield

1,500
2,571
1,836
1,311
938
937
938
468

510
874
624
446
319
318
319
159

#VALUE!

EBDT
3,000
3,000
3,000
2,500
2,500
2,500
2,500
0

$583.11

#VALUE!

$98.34

#VALUE!

Net income
1,980
1,980
1,980
1,650
1,650
1,650
1,650
0

FCF
-10,500
2,490
2,490
2,490
2,160
2,160
2,160
2,160

FCF
-10,500
2,490
2,854
2,604
2,096
1,969
1,968
1,969
159

Machine cost
Machine book value, year 5
Annual depreciation
Annual cost savings, before tax
Salvage value, year 5
Cash flow from salvage
Tax rate
Discount rate

60,000
10,000
10,000
22,500
5,000
6,500

#VALUE!

#VALUE!

30%
12%
Year
0
1
2
3
4
5

Cash flow
-60,000
18,750
18,750
18,750
18,750
25,250
11,278

#VALUE!

Discount rate
Corporate tax
Machine cost
Machine's terminal value
Machine's life span
Annual depreciation

12%
40%
100,000
20,000
8
10,000

#VALUE!

15,000
10,000
5,000
2,000
3,000
13,000

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Annual Calculations
Earnings before depreciation and taxes
Depreciation
Earnings pre tax
Taxes
Net profit
FCF
Calculation of NPV for the 8 years
0
1
2
3
4
5
6
7
8
8 (sale of the machine)
NPV

-100,000
13,000
13,000
13,000
13,000
13,000
13,000
13,000
13,000
14,000
-29766.32

#VALUE!

#VALUE!
#VALUE!
#VALUE!

Discount rate
Corporate tax
Machine's life span

12%
35%
10

Annual calculation

January
February
March
April
May
June
July
August
September
October
November
December

Additional output
0
0
0
0
0
20,000
20,000
20,000
20,000
0
0
0

Cost

Depreciation
0
0
0
0
0
0
0
0
0
0
9,000
0
9,000
0
9,000
0
9,000
0
5,000
0
0
0
0
15,000

Profit pre tax

Tax
Net profit
FCF

0
0
0
0
0
11,000
11,000
11,000
11,000
-5,000
0
-15,000

Equivalent in
December
0.00
0.00
0.00
0.00
0.00
11,641.31
11,531.88
11,423.49
11,316.11
-5,095.34
0.00
-15,000.00
25,817.45
9,036.11
16,781.34
$31,781.34

Calculation of NPV for the 10 years

Year
Cash flow
0
-150,000.00
1
31,781.34
2
31,781.34
3
31,781.34
4
31,781.34
5
31,781.34
6
31,781.34
7
31,781.34
8
31,781.34
9
31,781.34
10
31,781.34
NPV

Total

29,571.66

#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

COLD AND SWEET

Machine cost
Annual depreciation
Salvage value

900,000
90,000
100,000

Annual production (bars)

Cost per bar
Selling price per bar
Other costs
Advertising/year
Year 1
Subsequent years

400,000
0.50
1.40
40,000
30,000
10,000

Tax rate
Cost of capital

40%
14%

Year

Cash flow
Machine
0
1
2
3
4
5

Part a. Net present value

under initial assumptions
is -$50,029.94

#VALUE!

-900,000
210,000
230,000
230,000
230,000
380,000

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

-50,029.94

#VALUE!

Part b. By using goal seek

we get that the minimum
price is $1.46
Part c.
Setting the advertising = 0
and the price of a bar to $1.40
gives min. quantity = 421,227

Part d: Data table

Quantity
Price per bar

-50,029.94
1.00
1.20
1.30
1.40

300,000
-482,598
-359,007
-297,212
-235,416

400,000
-379,606
-214,818
-132,424
-50,030

1.50
1.60
1.70

-173,621
-111,825
-50,030

32,364
114,758
197,152

The colored cells (which use Format|Conditional Formatting ) show N

Annual Profit/Loss and cash flow

Year 1
Years 2-5
Sales
560,000
560,000
Costs
production
-200,000
-200,000
Other
-40,000
-40,000
Advertising
-30,000
-10,000
Depreciation
-90,000
-90,000
Net
200,000
220,000
-taxes
-80,000
-80,000
Net after taxes
120,000
140,000
Add back depreciation
Cash flow

90,000
210,000

90,000
230,000

Year 5 sale of machine

Sale of machine
Book value at time of sale
Loss on sale over book
Tax shield on loss

100,000
225,000
-125,000
50,000

Total cash flow from sale

of machine

150,000

500,000
-276,613
-70,628
32,364
135,356

600,000
-173,621
73,561
197,152
320,743

700,000
-70,628
217,750
361,940
506,129

238,349
341,341
444,334

ormat|Conditional Formatting ) show NPV>0

444,334
567,925
691,516

650,319
794,508
938,697

Discount rate
Corporate tax
Machine cost
Machine's disposal Value
Machine's life span
Annual depreciation

12%
40%
900,000
100,000
5
160,000

Annual Production
Price of ice-cream bar

410,000
1.3

Investment
Total turn-over
Fixed-cost
Variable-cost
Advertising cost
Earnings before depreciation & taxes
Depreciation
Earnings before tax
Tax
Net profit
Machine sale
FCF
NPV

0
-900,000

#VALUE!

-900,000

533,000
40,000
205,000
0
288,000
160,000
128,000
51,200
76,800
0
236,800

533,000
40,000
205,000
0
288,000
160,000
128,000
51,200
76,800
0
236,800

533,000
40,000
205,000
0
288,000
160,000
128,000
51,200
76,800
0
236,800

533,000
40,000
205,000
0
288,000
160,000
128,000
51,200
76,800
0
236,800

$10,353.69

#VALUE!

300,000
310,000
320,000
330,000
340,000
350,000
360,000
370,000
380,000
390,000
400,000
410,000
420,000
430,000
440,000
450,000
460,000
470,000
480,000
490,000
500,000

1.0
-374,636.41
-363,822.08
-353,007.75
-342,193.42
-331,379.09
-320,564.77
-309,750.44
-298,936.11
-288,121.78
-277,307.45
-266,493.12
-255,678.79
-244,864.46
-234,050.14
-223,235.81
-212,421.48
-201,607.15
-190,792.82
-179,978.49
-169,164.16
-158,349.84

1.1
-309,750.44
-296,773.24
-283,796.05
-270,818.85
-257,841.66
-244,864.46
-231,887.27
-218,910.08
-205,932.88
-192,955.69
-179,978.49
-167,001.30
-154,024.10
-141,046.91
-128,069.72
-115,092.52
-102,115.33
-89,138.13
-76,160.94
-63,183.74
-50,206.55

1.2
-244,864.46
-229,724.40
-214,584.34
-199,444.28
-184,304.22
-169,164.16
-154,024.10
-138,884.04
-123,743.98
-108,603.92
-93,463.86
-78,323.80
-63,183.74
-48,043.68
-32,903.62
-17,763.56
-2,623.50
12,516.56
27,656.62
42,796.68
57,936.74

1.3
-179,978.49
-162,675.57
-145,372.64
-128,069.72
-110,766.79
-93,463.86
-76,160.94
-58,858.01
-41,555.09
-24,252.16
-6,949.24
10,353.69
27,656.62
44,959.54
62,262.47
79,565.39
96,868.32
114,171.24
131,474.17
148,777.10
166,080.02

Data table

5
533,000
40,000
205,000
0
288,000
160,000
128,000
51,200
76,800
100,000
336,800

#VALUE!

1.4
-115,092.52
-95,626.73
-76,160.94
-56,695.15
-37,229.36
-17,763.56
1,702.23
21,168.02
40,633.81
60,099.60
79,565.39
99,031.18
118,496.98
137,962.77
157,428.56
176,894.35
196,360.14
215,825.93
235,291.73
254,757.52
274,223.31

1.5
-50,206.55
-28,577.89
-6,949.24
14,679.42
36,308.08
57,936.74
79,565.39
101,194.05
122,822.71
144,451.37
166,080.02
187,708.68
209,337.34
230,965.99
252,594.65
274,223.31
295,851.97
317,480.62
339,109.28
360,737.94
382,366.59

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

1.6
14,679.42
38,470.94
62,262.47
86,053.99
109,845.51
133,637.04
157,428.56
181,220.08
205,011.61
228,803.13
252,594.65
276,386.17
300,177.70
323,969.22
347,760.74
371,552.27
395,343.79
419,135.31
442,926.83
466,718.36
490,509.88

Discount rate
Corporate tax
Machine cost
Machine's terminal Value
Machine's life span
Annual depreciation
Annual Production
Price of bathrobe in year 1
Annual increase in price
Variable cost in year 1
Annual increase in variable cost

10%
36%
150,000
0
5
30,000 #VALUE!
6,791 ???
$45
10%
$30
5%
0
-150,000

Investment
Total turn-over
Fixed-cost
Variable-cost
Advertising costs
Earnings before depreciation & taxes
Depreciation
Earnings before tax
Tax
Net profit
Machine sale
FCF
-150,000
NPV

305,615
40,000
203,743
80,000
-18,128
30,000
-48,128
-17,326
-30,802
0
-802

336,177
40,000
213,931
80,000
2,246
30,000
-27,754
-9,991
-17,763
0
12,237

369,794
40,000
224,627
80,000
25,167
30,000
-4,833
-1,740
-3,093
0
26,907

406,774
40,000
235,859
80,000
50,915
30,000
20,915
7,530
13,386
0
43,386

447,451
40,000
247,651
80,000
79,800
30,000
49,800
17,928
31,872
6,400
68,272

-48,375 #VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Discount rate
Corporate tax

15%
40%

Old Machine
Machine cost
Machine's terminal value
Machine's life span
Annual depreciation
Book value (at t=0)
Market Value (at t=0)

60,000
0
6
10,000 #VALUE!
40,000 #VALUE!
20,000

New machine
Machine cost
Machine's terminal Value
Machine's life span
Annual depreciation

100,000
20,000
4
20,000 #VALUE!

Investment
sale of the old machine
Revenue increase
Annual cost save
Earnings before depreciation & taxes
Tax
Net profit
Depreciation tax shield (new machine)
Lost of depreciation (old machine)
FCF
NPV

0
-100,000
28,000

-72,000

30,000
10,000
40,000
-16000
24,000
8000
-4000
28,000

7,939 #VALUE!

30,000
10,000
40,000
-16000
24,000
8000
-4000
28,000

30,000
10,000
40,000
-16000
24,000
8000
-4000
28,000

30,000
10,000
40,000
-16000
24,000
8000
-4000
28,000

#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Discount rate
Corporate tax

11%
40%

Regular photocopy
Machine cost
Life span
Annual costs
Annual depreciation

10,000
5
1,500
2,000

Color photocopy
Machine cost
Life span
Annual costs
Annual depreciation
Additional turn over

30,000
5
4,500
6,000
8,500

#VALUE!

#VALUE!

Calculating the differential cash flows (color-regular)

0
1
Differential investment
-20,000
Additional turn over
8,500
-3,000
Differential annual costs
Earnings before depreciation & taxes
5,500
Differential depreciation
-4,000
Earning before tax
1,500
Tax
-600
Net Profit
900
FCF
-20,000
4,900
NPV

-1,890

#VALUE!

8,500
-3,000
5,500
-4,000
1,500
-600
900
4,900

8,500
-3,000
5,500
-4,000
1,500
-600
900
4,900

8,500
-3,000
5,500
-4,000
1,500
-600
900
4,900

8,500
-3,000
5,500
-4,000
1,500
-600
900
4,900

#VALUE!
#VALUE!
#VALUE!

#VALUE!

Discount rate
Corporate tax

11%
40%

Outside supplier
Price per can
Transportation cost
Total cost per can

0.2
0.1
0.3

#VALUE!

Own Production
Cost
Life span
Disposal value
Annual depreciation
Fixed cost
Cost per can

1,000,000
12
160,000
70,000
100,000
0.17

Breakeven production

3,082,578 <-- Determined with Goal Seek (see screen below)

Saving

NPV
IRR

Investment
0
-1,000,000
1
2
3
4
5
6
7
8
9
10
11
12

400,735
400,735
400,735
400,735
400,735
400,735
400,735
400,735
400,735
400,735
400,735
400,735

$0.00
11.00%

#VALUE!
#VALUE!

Fixed
cost
-100,000
-100,000
-100,000
-100,000
-100,000
-100,000
-100,000
-100,000
-100,000
-100,000
-100,000
-100,000

Machine's DepriciationPre-tax
repairs
Earning

-150,000

-150,000

-150,000

-70,000
-70,000
-70,000
-70,000
-70,000
-70,000
-70,000
-70,000
-70,000
-70,000
-70,000
-70,000

230,735
230,735
80,735
230,735
230,735
80,735
230,735
230,735
80,735
230,735
230,735
230,735

Goal seek screen to left

NPV
2,000,000
2,100,000
2,200,000
2,300,000
2,400,000
2,500,000
2,600,000
2,700,000
2,800,000
2,900,000
3,000,000
3,100,000
3,200,000
3,300,000
3,400,000
3,500,000
3,600,000
3,700,000
3,800,000
3,900,000
4,000,000

-365,481
-331,721
-297,961
-264,200
-230,440
-196,680
-162,920
-129,159
-95,399
-61,639
-27,879
5,882
39,642
73,402
107,162
140,923
174,683
208,443
242,203
275,964
309,724

IRR
3.24%
4.01%
4.76%
5.51%
6.24%
6.96%
7.68%
8.38%
9.08%
9.76%
10.44%
11.12%
11.78%
12.44%
13.10%
13.75%
14.39%
15.03%
15.66%
16.29%
16.91%

Net
Profit
92,294
92,294
32,294
92,294
92,294
32,294
92,294
92,294
32,294
92,294
92,294
92,294

Sell of
Machine

FCF

-1,000,000
162,294 #VALUE!
162,294
102,294
162,294
162,294
102,294
162,294
162,294
102,294
162,294
162,294
160,000
322,294 #VALUE!

Discount rate
Corporate tax
Annual production
Unit's sale price

Cost
Fixed cost per machine
Variable cost per unit
Annual production

11%
40%
1,000,000
6

Machine A
4,000,000
300,000
1.2

Machine B
10,000,000
210,000
0.8

400,000

Investing in "A type" machines

Number of machines

550,000

0
Investment
-12,000,000
Total turn-over
Fixed-cost
Variable-cost
Earnings before depreciation & taxes
Depreciation
Earnings before tax
Tax
Net profit

1
6,000,000
-900,000
-1,200,000
3,900,000
2,400,000
6,300,000
-2,520,000
3,780,000

FCF

-12,000,000

6,180,000

NPV

10,840,644

#VALUE!

Investing in "B type" machines

Number of machines

6,000,000 6,000,000 6,000,000

-900,000
-900,000
-900,000
-1,200,000 -1,200,000 -1,200,000
3,900,000 3,900,000 3,900,000
2,400,000 2,400,000 2,400,000
6,300,000 6,300,000 6,300,000
-2,520,000 -2,520,000 -2,520,000
3,780,000 3,780,000 3,780,000
6,180,000

6,180,000

6,180,000

0
-20,000,000

Investment
Total turn-over
Fixed-cost
Variable-cost
Earnings before depreciation & taxes
Depreciation
Earnings before tax
Tax
Net profit

1
6,000,000
-420,000
-800,000
4,780,000
2,400,000
7,180,000
-2,872,000
4,308,000

FCF

-20,000,000

6,708,000

NPV

13,540,000

#VALUE!

Production

NPV "A"

6,000,000 6,000,000 6,000,000

-420,000
-420,000
-420,000
-800,000
-800,000
-800,000
4,780,000 4,780,000 4,780,000
2,400,000 2,400,000 2,400,000
7,180,000 7,180,000 7,180,000
-2,872,000 -2,872,000 -2,872,000
4,308,000 4,308,000 4,308,000
6,708,000

NPV "B"

6,708,000

6,708,000

Production (thousands

200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,500,000

2,194,323
3,258,742
4,323,160
5,453,065
6,517,483
7,581,902
8,646,320
9,776,225
10,840,644
11,905,062
12,969,480
14,099,385
15,163,804
16,228,222

-1,110,000
450,000
2,010,000
9,970,000
900,000
2,460,000
4,020,000
11,980,000
13,540,000
15,100,000
6,030,000
13,990,000
15,550,000
17,110,000

200
300
400
500
600
700
800
900
1000
1100
1200
1300
1400
1500

NPV of ZZZ company

20,000,000

NPV

15,000,000
10,000,000
5,000,000
0
-5,000,000

NPV "A"
NPV "B"

Production (thousands)

5
6,000,000
-900,000
-1,200,000
3,900,000
2,400,000
6,300,000
-2,520,000
3,780,000
6,180,000

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!

5
6,000,000
-420,000
-800,000
4,780,000
2,400,000
7,180,000
-2,872,000
4,308,000
6,708,000

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!

ny

ands)

Discount rate
Corporate tax
Machine's life span
Price of new machine
Price of old machine (t=0)
Book Value of old machine
Saving per pair of sunglasses
Buying 2 machines
Investment at t=0
Buying 2 machines
Selling 2 old machines
tax credit
Total
Annual calculation
January
February
March
April
May
June
July
August
September
October
November
December

10%
40%
5
20,000
6,000
10,000
0.85

-40,000
12,000
8,000
-20,000

#VALUE!
#VALUE!
#VALUE!
#VALUE!

Net
Equivalent in
Production Saving
depreciation total
December
1,000
850
0
850
927.60
1,000
850
0
850
920.26
1,000
850
0
850
912.98
1,000
850
0
850
905.76
2,000
1,700
0
1,700
1,797.19
2,000
1,700
0
1,700
1,782.98
2,000
1,700
0
1,700
1,768.87
2,000
1,700
0
1,700
1,754.88
2,000
1,700
0
1,700
1,740.99
1,000
850
0
850
863.61
1,000
850
0
850
856.78
1,000
850
4,000
-3,150
-3,150.00

Profit pre tax

Tax
Net profit
FCF

11,081.91
4,432.76
6,649.15
$10,649.15

Calculation of NPV for the 5 years

Year
0
1
2
3
4
5

Cash flow
-20,000.00
10,649.15
10,649.15
10,649.15
10,649.15
10,649.15

NPV

$20,368.64

Buying 1 machine
Investment at t=0

#VALUE!

#VALUE!
#VALUE!

Buying 2 machines
Selling 2 old machines
Tax credit
Total
Annual calculation

January
February
March
April
May
June
July
August
September
October
November
December

-20000
6000
4000
-10000

#VALUE!
#VALUE!
#VALUE!
#VALUE!

Net
Equivalent in
Production Saving
depreciation total
December
1,000
850
0
850
927.60
1,000
850
0
850
920.26
1,000
850
0
850
912.98
1,000
850
0
850
905.76
2,000
850
0
850
898.60
2,000
850
0
850
891.49
2,000
850
0
850
884.43
2,000
850
0
850
877.44
2,000
850
0
850
870.50
1,000
850
0
850
863.61
1,000
850
0
850
856.78
1,000
850
2,000
-1,150
-1,150.00

Profit pre tax

Tax
Net profit
FCF

8,659.46
3,463.78
5,195.67
7,195.67

Calculation of NPV for the 5 years

0 -10,000.00
1
7,195.67
2
7,195.67
3
7,195.67
4
7,195.67
5
7,195.67
NPV

$25,978.37

#VALUE!

#VALUE!
#VALUE!

#VALUE!

#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Discount rate
Zeus tax
Ship cost
annual earnings (first year)
Annual cost (two ships)

8%
50%
1,000
300
60

0
Investment
-2,000
Total turn-over
Annual costs
Earnings before depreciation & taxes
Depreciation
Earnings before tax
Tax
Net profit
FCF

-2,000
NPV

b.
Discount rate
Zeus tax

300
-60
240
-200
40
-20
20

315
-60
255
-200
55
-28
28

331
-60
271
-200
71
-35
35

347
-60
287
-200
87
-44
44

365
-60
305
-200
105
-52
52

383
-60
323
-200
123
-61
61

402
-60
342
-200
142
-71
71

422
-60
362
-200
162
-81
81

220

228

235

244

252

261

271

281

-303

###

300
-60
240
-200
40
-3
37

315
-60
255
-200
55
-4
51

331
-60
271
-200
71
-5
66

347
-60
287
-200
87
-6
81

365
-60
305
-200
105
-8
97

383
-60
323
-200
123
-9
114

402
-60
342
-200
142
-10
132

422
-60
362
-200
162
-12
150

237

251

266

281

297

314

332

350

###

8%
7%

0
Investment
-2,000
Total turn-over
Annual costs
Earnings before depreciation & taxes
Depreciation
Earnings before tax
Tax
Net profit
FCF

-2,000
NPV

10

443
-60
383
-200
183
-92
92

465
-60
405
-200
205
-103
103

292

303

10

443
-60
383
-200
183
-14
170

465
-60
405
-200
205
-15
190

370

390

Discount rate
Zeus tax
Ship cost
Average annual earnings
Annual cost (one ship)

8%
50%
1,000
238
40

0
Investment
-1,000
Total turn-over
Annual costs
Earnings before depreciation & taxes
Depreciation
Earnings before tax
Tax
Net profit
FCF

-1,000
NPV

0
150
160
170
180
190
200
210
220
230
240
250
260
270
280
290
300
310
320

238
-40
198
-100
98
-49
49

238
-40
198
-100
98
-49
49

238
-40
198
-100
98
-49
49

238
-40
198
-100
98
-49
49

238
-40
198
-100
98
-49
49

238
-40
198
-100
98
-49
49

238
-40
198
-100
98
-49
49

238
-40
198
-100
98
-49
49

149

149

149

149

149

149

149

149

5%
-265
-202
-138
-74
-10
53
117
181
245
308
372
436
500
563
627
691
755
818

10%
-269
-208
-148
-87
-27
33
94
154
215
275
335
396
456
516
577
637
698
758

15%
-272
-215
-158
-101
-44
13
70
127
184
241
298
355
412
470
527
584
641
698

20%
-275
-222
-168
-114
-61
-7
47
100
154
208
261
315
369
423
476
530
584
637

25%
-279
-228
-178
-128
-77
-27
23
74
124
174
225
275
325
376
426
476
527
577

30%
-282
-235
-188
-141
-94
-47
-0
47
94
141
188
235
282
329
376
423
470
516

35%
-285
-242
-198
-155
-111
-67
-24
20
64
107
151
194
238
282
325
369
412
456

0%
-262
-195
-128
-61
7
74
141
208
275
342
409
476
543
610
678
745
812
879

330
340
350
360

946
1013
1080
1147

882
946
1010
1073

818
879
939
1000

755
812
869
926

691
745
798
852

627
678
728
778

563
610
657
704

500
543
587
631

10

238
-40
198
-100
98
-49
49

238
-40
198
-100
98
-49
49

149

149

40%
-289
-248
-208
-168
-128
-87
-47
-7
33
74
114
154
194
235
275
315
355
396

45%
-292
-255
-218
-181
-144
-108
-71
-34
3
40
77
114
151
188
225
261
298
335

50%
-295
-262
-228
-195
-161
-128
-94
-61
-27
7
40
74
107
141
174
208
241
275

436
476
516
557

372
409
446
483

308
342
376
409

Discount rate
Corporate tax

Machinery cost
Annual number of shoes
Price of shoe
Cost per shoe

12%
40%

250,000
5,000
150
60

Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
NPV

Investme
Total
R&D
nt
turnover
(200,000)
(200,000)
(200,000)
(200,000) (250,000)
750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
-$164,279.55

b - IOC loan
Total loan
Annual Payment
NPV Loan
Total NPV

521,911
86,985
164,280
$0.00

#VALUE!

Fixed
cost

Variable
cost

(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)

(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)

Depreciation

(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)

Profit
before
taxes
(200,000)
(200,000)
(200,000)
(200,000)
125,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000

Net
income
(120,000)
(120,000)
(120,000)
(120,000)
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000

FCF
(120,000)
(120,000)
(120,000)
(370,000)
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000

Discount rate
Corporate tax

12%
40%

Machinery cost
Annual number of shoes
Price of shoe
Cost per shoe

250,000
3,968
150
60

Year
0
1
2
3
4
5
6
7
8
9
10
NPV

$0.0

b. If the IOC loan canceled

Discount rate
Corporate tax

Machinery cost
Annual number of shoes
Price of shoe
Cost per shoe

Total
Investment turnover
(250,000)
595,128
595,128
595,128
595,128
595,128
595,128
595,128
595,128
595,128
595,128

12%
40%

250,000
3,866
150
60

Fixed
cost

Variable
cost

(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)
(300,000)

(238,051)
(238,051)
(238,051)
(238,051)
(238,051)
(238,051)
(238,051)
(238,051)
(238,051)
(238,051)

Depreciation
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)

Total
Fixed
Investment turn over Cost
0
(250,000)
1
579,890 (300,000)
2
579,890 (300,000)
3
579,890 (300,000)
4
579,890 (300,000)
5
579,890 (300,000)
6
579,890 (300,000)
7
579,890 (300,000)
8
579,890 (300,000)
9
579,890 (300,000)
10
579,890 (300,000)

NPV

-$30,994.9

Outstanding debt
Number of payments
Annual Payment

200,000
2
100,000

NPV Loan

$30,995

Total NPV

-$0.0

#VALUE!

Variable
Cost
(231,956)
(231,956)
(231,956)
(231,956)
(231,956)
(231,956)
(231,956)
(231,956)
(231,956)
(231,956)

Depreciation

(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)
(25,000)

Profit
before
taxes
32,077
32,077
32,077
32,077
32,077
32,077
32,077
32,077
32,077
32,077

Net
income
19,246
19,246
19,246
19,246
19,246
19,246
19,246
19,246
19,246
19,246

FCF
(250,000)
44,246
44,246
44,246
44,246
44,246
44,246
44,246
44,246
44,246
44,246

Profit before Net

taxes
Income
22,934
22,934
22,934
22,934
22,934
22,934
22,934
22,934
22,934
22,934

13,760
13,760
13,760
13,760
13,760
13,760
13,760
13,760
13,760
13,760

FCF
(250,000)
38,760 #VALUE!
38,760
38,760
38,760
38,760
38,760
38,760
38,760
38,760
38,760

Monthly discount rate

0.57%

Aggressive campaign:
Initial cost
First month profits
Profits growth rate

400,000
25,000
10%

Regular campaign
Initial cost
First month profits
Profits growth rate

150,000
10,000
6%

Month
0
1
2
3
4
5
6
7
8
9
10
11
12
13-infinity
NPV

#VALUE!

Aggressive
campaign
-400,000
25,000
27,500
30,250
33,275
36,603
40,263
44,289
48,718
53,590
58,949
64,844
71,328
20,000

Regular
campaign
-150,000
10,000
10,600
11,236
11,910
12,625
13,382
14,185
15,036
15,938
16,895
17,908
18,983
20,000

Difference
-250,000
15,000
16,900
19,014
21,365
23,978
26,880
30,104
33,682
37,651
42,054
46,935
52,345
0

3,649,468

3,549,256

100,212

#VALUE!

13,000
14,000
15,000
16,000
17,000
18,000
19,000
20,000
21,000
22,000
23,000
24,000
25,000
26,000
27,000

4%
-224,181
-209,731
-195,281
-180,831
-166,381
-151,931
-137,482
-123,032
-108,582
-94,132
-79,682
-65,233
-50,783
-36,333
-21,883

5%
-213,164
-197,867
-182,569
-167,272
-151,975
-136,678
-121,380
-106,083
-90,786
-75,489
-60,191
-44,894
-29,597
-14,299
998

28,000
29,000
30,000
31,000
32,000
33,000

-7,433
7,017
21,466
35,916
50,366
64,816

16,295
31,592
46,890
62,187
77,484
92,781

6%
-201,391
-185,189
-168,986
-152,783
-136,580
-120,377
-104,174
-87,972
-71,769
-55,566
-39,363
-23,160
-6,957
9,246
25,448

7%
-188,812
-171,641
-154,471
-137,300
-120,130
-102,959
-85,789
-68,618
-51,447
-34,277
-17,106
64
17,235
34,405
51,576

8%
-175,370
-157,165
-138,961
-120,756
-102,552
-84,347
-66,143
-47,938
-29,734
-11,529
6,675
24,880
43,084
61,289
79,493

9%
10%
11%
12%
-161,008 -145,663 -129,271 -111,761
-141,698 -125,174 -107,521
-88,664
-122,389 -104,684
-85,770
-65,567
-103,080
-84,195
-64,020
-42,469
-83,770
-63,705
-42,269
-19,372
-64,461
-43,215
-20,519
3,726
-45,152
-22,726
1,232
26,823
-25,843
-2,236
22,983
49,921
-6,533
18,254
44,733
73,018
12,776
38,743
66,484
96,116
32,085
59,233
88,234 119,213
51,395
79,722 109,985 142,311
70,704 100,212 131,735 165,408
90,013 120,702 153,486 188,506
109,322 141,191 175,236 211,603

13%
-93,060
-68,524
-43,988
-19,452
5,084
29,620
54,157
78,693
103,229
127,765
152,301
176,837
201,373
225,909
250,445

41,651
57,854
74,057
90,260
106,463
122,665

68,746
85,917
103,087
120,258
137,428
154,599

97,698
115,902
134,107
152,311
170,516
188,720

128,632
147,941
167,250
186,560
205,869
225,178

161,681
182,171
202,660
223,150
243,639
264,129

196,987
218,738
240,488
262,239
283,989
305,740

234,700
257,798
280,895
303,993
327,090
350,188

274,981
299,517
324,053
348,589
373,125
397,661

Discount rate
Tax rate

12%
30%

Annual production

577,350

Selling price per vaccine

Annual production per machine

1,000
250,000

Number of machines
Price of each machine
Variable cost
Annual fixed costs
Machine life span
Annual Depreciation

3
5,000,000
333.33333
50,000,000
5
1,000,000

Some help on this problem:

1. The development cost is irrelevant (i
2. By using the Excel function
3. First set up a
4. Then use Goal Seek

#VALUE!
#VALUE!

All numbers in thousands

0
Investment
Total income
Variable costs
Fixed cost
Pre-tax profit
After tax profit
Tax shield
Free cash flow
NPV

-15,000

-15,000

577,350
-192,450
-50,000
334,900
234,430
900
235,330

577,350
-192,450
-50,000
334,900
234,430
900
235,330

577,350
-192,450
-50,000
334,900
234,430
900
235,330

$1,314,667.70

Data table of NPV versus annual production

NPV
Annual production
1,314,668
10,000
-161,515
50,000
-3,799
100,000
190,498
150,000
378,862
200,000
558,327
250,000
725,927
300,000
875,390
350,000
1,010,360
400,000
1,124,565
450,000
1,215,039
500,000
1,278,816
550,000
1,309,624
600,000
1,311,107
650,000
1,276,994
700,000
1,204,318

NPV versus Product

1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
-200,000 0

200,000

400,000

-400,000
Production

600,

400,000
200,000
0
-200,000 0
750,000
800,000
850,000
900,000
950,000
1,000,000

1,090,113
928,107
721,945
465,354
155,369
-210,978

200,000

400,000

-400,000
Production

600,

ome help on this problem:

The development cost is irrelevant (it's a sunk cost).
By using the Excel function RoundUp we can compute the number of machines needed based on the annual production.
First set up a Data Table to show the effect of Sales/Production on the NPV of the project.
Then use Goal Seek or Solver to find a solution.

thousands
4
577,350
-192,450
-50,000
334,900
234,430
900
235,330

5
-15,000
577,350
-192,450
-50,000
334,900
234,430
900
235,330

6
577,350
-192,450
-50,000
334,900
234,430
900
235,330

7
577,350
-192,450
-50,000
334,900
234,430
900
235,330

NPV versus Production

200,000

400,000

Production

600,000

800,000

1,000,000

8
577,350
-192,450
-50,000
334,900
234,430
900
235,330

9
577,350
-192,450
-50,000
334,900
234,430
900
235,330

10
577,350
-192,450
-50,000
334,900
234,430
900
235,330

200,000

400,000

Production

600,000

800,000

1,000,000

Discount rate
Tax rate
Annual production
Annual production
Price
Annual production per machine
Number of machines
Price of each machine
Variable cost
Annual fixed costs
life span
Annual Depreciation

12%
30%
277,123
277,123
1,686
50,000
6
70,000,000
1000
120,000,000
5
14,000,000

All numbers in thousands

Investment
Total income
Variable costs
Fix cost
Pre-tax profit
After tax profit
Tax shield
FCF
NPV

0
-420,000

-420,000

467,314
-277,123
-120,000
70,190
49,133
25,200
74,333

467,314
-277,123
-120,000
70,190
49,133
25,200
74,333

467,314
-277,123
-120,000
70,190
49,133
25,200
74,333

467,314
-277,123
-120,000
70,190
49,133
25,200
74,333

-$0.00

#VALUE!

5
-420,000
467,314
-277,123
-120,000
70,190
49,133
25,200
74,333

10

467,314
-277,123
-120,000
70,190
49,133
25,200
74,333

467,314
-277,123
-120,000
70,190
49,133
25,200
74,333

467,314
-277,123
-120,000
70,190
49,133
25,200
74,333

467,314
-277,123
-120,000
70,190
49,133
25,200
74,333

467,314
-277,123
-120,000
70,190
49,133
25,200
74,333