for mba master

profileglytzgalb7
MBA_619_npvexample2.xlsx
Home>Business & Finance homework help>Economics homework help>for mba master

NPV Example

Sample NPV Calculation
Assumptions Table: Unit Selling Price and Contribution Margin (CM) Approach:
1 The project life in years: 10
2 Initial investment applied in Year 0: 150000 CM=Unit Sell Price-Unit Total Variable Cost (TVC)
3 Depreciation amount - straight line, 5 yrs, $0 salvage: 30000 Unit Year 1 Ratios
4 Forecast % Inflation rate: 2.00% Sell Price 3.60 Given
5 Forecast sales volume product units in Year 1: 150,000 TVC 2.00 Calc TVC/Sell Price 55.56%
6 Forecast sales volume growth %: 6.00% CM 1.60 Calc CM/Sell Price 44.44%
7 Product unit price in Year 1: 3.60
8 Product unit materials cost in Year 1: 1.00 CM/TVC 80.00%
9 Product labor costs/hr in Year 1: 10.00 Unit Sell Price =TVC*(1+CM/TVC)=2.00*1.8= 3.60
10 Labor productivity units/hr: 10
11 Corporate tax rate %: 30.00%
12 The risk free rate of return (rf): 2.00%
13 The S&P 500 return (rm): 8.00%
14 Firm return above S&P500: 10.00%
15 Beta (β=1+firm return above S&P500) 1.10
16 Discount rate/WACC (r=rf+beta*(rm-rf)): 8.60%
17 Depreciation - years: 5
CM ratio verification 44.44% 44.44% 44.44% 44.44% 44.44% 44.44% 44.44% 44.44% 44.44% 44.44%
Year 0 1 2 3 4 5 6 7 8 9 10
Investment: -150000.00
Revenue:
Unit Sell Price 3.60 3.67 3.75 3.82 3.90 3.97 4.05 4.14 4.22 4.30
Sales Volume-units 150000 159000 168540 178652 189372 200734 212778 225545 239077 253422
Gross Revenue 540000 583848 631256 682514 737935 797855 862641 932687 1008421 1090305
Expenses:
Unit TVC 2.00 2.04 2.08 2.12 2.16 2.21 2.25 2.30 2.34 2.39
COGS 300000 324360 350698 379175 409964 443253 479245 518160 560234 605725
Earnings Before Tax & Depreciation (EBITDA): 240000 259488 280558 303340 327971 354602 383396 414528 448187 484580
Less Depreciation 30000 30000 30000 30000 30000 0 0 0 0 0
Earnings Before Tax (EBT): 210000 229488 250558 273340 297971 354602 383396 414528 448187 484580
Taxes 63000 68846 75168 82002 89391 106381 115019 124358 134456 145374
Net Income 147000 160642 175391 191338 208580 248222 268377 290169 313731 339206
Plus Depreciation 30000 30000 30000 30000 30000 0 0 0 0 0
Free Cash Flow -150000 177000 190642 205391 221338 238580 248222 268377 290169 313731 339206
NPV $ 1,401,926