Super Project

Super Project Valuation
ROFE?
ROFE is not a good way to measure project

feasibility doesn't account for time value of
money. Also uses profit before taxes.
Understates the impact of higher starting costs
in a project
Should use FCF and NPV analysis instead
NPV Calculation (Incremental

Accounting)
year 0
year 1
year 2
year 3
year 4
year 5
year 6
year 7
year 8
year 9
year 10
Net Revenue
2,112.00 2,304.00 2,496.00 2,688.00 2,880.00 2,880.00 3,072.00 3,072.00 3,264.00 3,264.00
CGS
1,100.00 1,200.00 1,300.00 1,400.00 1,500.00 1,500.00 1,600.00 1,600.00 1,700.00 1,700.00
Gross Profit
Advertising Expense -
1,012.0 1,104.0 1,196.0 1,288.0 1,380.0 1,380.0 1,472.0 1,472.0 1,564.0 1,564.0
0
0
0
0
0
0
0
0
0
0
1,100.00 1,050.00 1,000.00 900.00
700.00
700.00
730.00
730.00
750.00
750.00
230.00
230.00
240.00
240.00
250.00
250.00
Selling Expense
Gen. And Admins Cost
Research Expense
Start up Costs
15.00
Other(Explain) Test Market 360.00

Adjustments(Explain) erosion
Total Expenses other than COGS
180.00
200.00
210.00
220.00
1,295.0 1,250.0 1,210.0 1,120.0

1,000.0 1,000.0
360.00 0
0
0
0
930.00 930.00 970.00 970.00 0
0
Over Head Expenses

EBITDA
(360.00 (283.00 (146.00

)
)
)
(14.00) 168.00 450.00 450.00 502.00 502.00 564.00 564.00
Cumulative Depreciation
Depreciation
19.00
37.00
54.00
70.00
85.00
98.00
110.00
121.00
131.00
140.00
19.00
18.00
17.00
16.00
15.00
13.00
12.00
11.00
10.00
9.00
NPV Calculation (Incremental)
Discount Rate at
which NPV is
zero=10.33%
Feasibility
depending on
General Foods'
guidelines
Compare to
ROFE findings in
case
NPV Calculation (Facilities Used

Basis)
year 0
year 1
year 2
year 3
year 4
year 5
year 6
year 7
year 8
year 9
year 10
Net Revenue
2,112.00 2,304.00 2,496.00 2,688.00 2,880.00 2,880.00 3,072.00 3,072.00 3,264.00 3,264.00
CGS
1,100.00 1,200.00 1,300.00 1,400.00 1,500.00 1,500.00 1,600.00 1,600.00 1,700.00 1,700.00
Gross Profit
1,012.0 1,104.0 1,196.0 1,288.0 1,380.0 1,380.0 1,472.0 1,472.0 1,564.0 1,564.0
0
0
0
0
0
0
0
0
0
0
1,100.00 1,050.00 1,000.00 900.00
700.00
700.00
730.00
730.00
750.00
750.00
230.00
230.00
240.00
240.00
250.00
250.00
Selling Expense
Research Expense
Start up Costs
15.00

180.00
200.00
210.00
220.00
1,295.0 1,250.0 1,210.0 1,120.0

1,000.0 1,000.0
360.00 0
0
0
0
930.00 930.00 970.00 970.00 0
0
Over Head Expenses

EBITDA
(360.00 (283.00 (146.00

)
)
)
(14.00) 168.00 450.00 450.00 502.00 502.00 564.00 564.00
Depreciation
19.00
37.00
54.00
70.00
85.00
98.00
110.00
121.00
131.00
140.00
19.00
18.00
17.00
16.00
15.00
13.00
12.00
11.00
10.00
9.00
NPV Calculation (Facilities Used

Basis)
Discount rate
needed for which
NPV is zero=
3.18%
Feasible under
GF's guidelines?
Compare to ROFE
in case
NPV Calculation (Fully allocated

basis)
year 0
year 1
year 2
year 3
year 4
year 5
year 6
year 7
year 8
year 9
year 10
Net Revenue
2,112.00 2,304.00 2,496.00 2,688.00 2,880.00 2,880.00 3,072.00 3,072.00 3,264.00 3,264.00
CGS
1,100.00 1,200.00 1,300.00 1,400.00 1,500.00 1,500.00 1,600.00 1,600.00 1,700.00 1,700.00
Gross Profit
1,012.0 1,104.0 1,196.0 1,288.0 1,380.0 1,380.0 1,472.0 1,472.0 1,564.0 1,564.0
0
0
0
0
0
0
0
0
0
0
1,100.00 1,050.00 1,000.00 900.00
700.00
700.00
730.00
730.00
750.00
750.00
230.00
230.00
240.00
240.00
250.00
250.00
Selling Expense
Research Expense
Start up Costs
15.00

180.00
200.00
210.00
220.00
1,295.0 1,250.0 1,210.0 1,120.0

1,000.0 1,000.0
360.00 0
0
0
0
930.00 930.00 970.00 970.00 0
0
Over Head Expenses

EBITDA
90.00
90.00
90.00
90.00
90.00
(360.00 (283.00 (146.00

)
)
)
(14.00) 168.00 360.00 360.00 412.00 412.00 474.00 474.00
Depreciation
90.00
19.00
37.00
54.00
70.00
85.00
98.00
110.00
121.00
131.00
140.00
19.00
18.00
17.00
16.00
15.00
13.00
12.00
11.00
10.00
9.00
NPV Calculation (Fully Allocated

Basis)
NPV vs Discount Rate
NPV
0%
(100.00)
(200.00)
(300.00)
(400.00)
(500.00)
(600.00)
(700.00)
(800.00)
(900.00)
(1,000.00)
5%
10%
15%
Discount Rate
20%
25%
30%
Discount rate
needed for which
NPV is zero=0.57%
Feasibility?
Compare to ROFE
in case
NPV Valuation Summary
Essentially compare and contrast the different

accounting method's NPV stats
Final NPV Analysis
Talk about what we included and didn't include

Didn't charge for the test market or the facilities
used and why
Used the overhead expenses because it's
reasonable to assume that as sales for Super
increase it'll cost more to run their day to day
operations
Final NPV Analysis

year 0
year 1
year 2
year 3
year 4
year 5
year 6
year 7
year 8
year 9
year 10
Net Revenue
2,112.00 2,304.00 2,496.00 2,688.00 2,880.00 2,880.00 3,072.00 3,072.00 3,264.00 3,264.00
CGS
1,100.00 1,200.00 1,300.00 1,400.00 1,500.00 1,500.00 1,600.00 1,600.00 1,700.00 1,700.00
Gross Profit
1,012.0 1,104.0 1,196.0 1,288.0 1,380.0 1,380.0 1,472.0 1,472.0 1,564.0 1,564.0
0
0
0
0
0
0
0
0
0
0
1,100.00 1,050.00 1,000.00 900.00
700.00
700.00
730.00
730.00
750.00
750.00
230.00
230.00
240.00
240.00
250.00
250.00
Selling Expense
Research Expense
Start up Costs
15.00
Other(Explain) Test Market

180.00
-
200.00
210.00
220.00
1,295.0 1,250.0 1,210.0 1,120.0

1,000.0 1,000.0
0
0
0
0
930.00 930.00 970.00 970.00 0
0
Over Head Expenses

EBITDA
90.00
-
Depreciation
90.00
90.00
90.00
90.00
90.00
(283.00 (146.00
)
)
(14.00) 168.00 360.00 360.00 412.00 412.00 474.00 474.00
19.00
37.00
54.00
70.00
85.00
98.00
110.00
121.00
131.00
140.00
19.00
18.00
17.00
16.00
15.00
13.00
12.00
11.00
10.00
9.00
Final NPV Analysis
Discount rate
needed for
which NPV is
zero=11.63%
Assuming
these things,
project feasible
according to
General Foods'
guidelines.

Super Project

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Super Project Valuation

ROFE is not a good way to measure project

NPV Calculation (Incremental

Other(Explain) Test Market 360.00

1,295.0 1,250.0 1,210.0 1,120.0

Over Head Expenses

(360.00 (283.00 (146.00

NPV Calculation (Incremental)

NPV Calculation (Facilities Used

Other(Explain) Test Market 360.00

1,295.0 1,250.0 1,210.0 1,120.0

Over Head Expenses

(360.00 (283.00 (146.00

NPV Calculation (Facilities Used

NPV Calculation (Fully allocated

Other(Explain) Test Market 360.00

1,295.0 1,250.0 1,210.0 1,120.0

Over Head Expenses

(360.00 (283.00 (146.00

NPV Calculation (Fully Allocated

NPV vs Discount Rate

NPV Valuation Summary

Essentially compare and contrast the different

Final NPV Analysis

Talk about what we included and didn't include

Final NPV Analysis

Other(Explain) Test Market

1,295.0 1,250.0 1,210.0 1,120.0

Over Head Expenses

Final NPV Analysis

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