| Sydney Harbour Fuel |
| Note that the figures below have the sign (+ or -) as is given in the Net Income or CFFA equations. So for example, CapEx: new vessels is negative not because we sold the boats, we bought them. |
| It's made negative since CapEx is subtracted from CFFA. This means that total CFFA can simply be summed rather than subtracted. Doing it this way is fine, but you can also take the sign of the number into account in the total which is fine too. For example, you could have a positive CapEx, and subtract that number from total CFFA. |
| Year | | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| Cash flows at the start |
| CapEx: New Vessels | | (32,000,000.00) |
| Working Capital | | (1,100,000.00) |
| Retrnechment | | (70,000.00) |
| Sell Old Boats | | 1,920,000.00 |
| Book value of old boats according to tax office | 4,600,000.00 |
| Tax on Salvage Sale | | 804,000.00 |
| Total cash flows at the start | | (30,446,000.0) |
| | | | | | | assumes that renovated barges aren't replaced |
| NI over life |
| Revenue - Light Diesel | | | 2,000,000.00 | 2,000,000.00 | 2,000,000.00 | 6,000,000.00 | 6,000,000.00 | 10,000,000.00 | 10,000,000.00 | 10,000,000.00 | 10,000,000.00 | 10,000,000.00 |
| Revenue - heavy Deiesel | | | 20,000,000.00 | 20,000,000.00 | 20,000,000.00 | 20,000,000.00 | 20,000,000.00 | 20,000,000.00 | 20,000,000.00 | 20,000,000.00 | 20,000,000.00 | 20,000,000.00 |
| Lost petrol Revenue | | | (4,000,000.00) | (4,000,000.00) | (4,000,000.00) | (2,000,000.00) | (2,000,000.00) |
| Old Depreciation | | | 1,000,000.00 | 1,000,000.00 | 1,000,000.00 | 800,000.00 | 800,000.00 |
| Salvage | | | | | (200,000.00) | | (400,000.00) |
| Depreciation New Barges | | | (3,200,000.00) | (3,200,000.00) | (3,200,000.00) | (3,200,000.00) | (3,200,000.00) | (3,200,000.00) | (3,200,000.00) | (3,200,000.00) | (3,200,000.00) | (3,200,000.00) |
| Insurance | | | 2,000.00 | 2,000.00 | 2,000.00 | 2,000.00 | 2,000.00 | 2,000.00 | 2,000.00 | 2,000.00 | 2,000.00 | 2,000.00 |
| Wages Saved | | | 200,000.00 | 200,000.00 | 200,000.00 | 200,000.00 | 200,000.00 | 200,000.00 | 200,000.00 | 200,000.00 | 200,000.00 | 200,000.00 |
| NI before tax | | | 16,002,000.00 | 16,002,000.00 | 15,802,000.00 | 21,802,000.00 | 21,402,000.00 | 27,002,000.00 | 27,002,000.00 | 27,002,000.00 | 27,002,000.00 | 27,002,000.00 |
| Tax | | | (4,800,600.00) | (4,800,600.00) | (4,740,600.00) | (6,540,600.00) | (6,420,600.00) | (8,100,600.00) | (8,100,600.00) | (8,100,600.00) | (8,100,600.00) | (8,100,600.00) |
| Cash flows over life |
| Add back Depreciation | | | 2,200,000.00 | 2,200,000.00 | 2,200,000.00 | 2,400,000.00 | 2,400,000.00 | 3,200,000.00 | 3,200,000.00 | 3,200,000.00 | 3,200,000.00 | 3,200,000.00 |
| Note that the other items in CFFA are zero so we only add back depreciation here. |
| Total cash flows over the life | | | 13,401,400.00 | 13,401,400.00 | 13,261,400.00 | 17,661,400.00 | 17,381,400.00 | 22,101,400.00 | 22,101,400.00 | 22,101,400.00 | 22,101,400.00 | 22,101,400.00 |
| Cash flows at the end |
| Salvage Value | | | | | | | | | | | | 3,360,000.00 |
| Working capital | | | | | | | | | | | | 1,100,000.00 |
| Total cash flows at end of project | | | | | | | | | | | | 4,460,000.0 |
| | | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| Summary and NPV calculations |
| Cash flows |
| At start | | (30,446,000.0) |
| Over the life | | | 13,401,400.0 | 13,401,400.0 | 13,261,400.0 | 17,661,400.0 | 17,381,400.0 | 22,101,400.0 | 22,101,400.0 | 22,101,400.0 | 22,101,400.0 | 22,101,400.0 |
| At the end of the project | | | | | | | | | | | | 4,460,000.0 |
| | | (30,446,000.0) | 13,401,400.0 | 13,401,400.0 | 13,261,400.0 | 17,661,400.0 | 17,381,400.0 | 22,101,400.0 | 22,101,400.0 | 22,101,400.0 | 22,101,400.0 | 26,561,400.0 |
| Cumulative cash flows to calculate payback period | Payback | (30,446,000.0) | (17,044,600.0) | (3,643,200.0) | 0.275 |
| Required nominal rate of return (assumed that it is after tax) | 12.500% |
| Required real rate of return (assumed that it is after tax) | 7.143% |
| PV (cash flows) | | (30,446,000.0) | 11,912,355.6 | 10,588,760.5 | 9,313,905.1 | 11,025,925.1 | 9,645,442.2 | 10,901,961.7 | 9,690,632.6 | 8,613,895.6 | 7,656,796.1 | 8,179,480.8 |
| Total NPV | | 67,083,155.1 | $67,083,155.15 |
| Note that we're using the 'textbook' method of valuation since we discount unlevered CFFA using the after-tax WACC. |
| Accept/Reject Project | | Accept |
| Payback Period | | 2.2747 |
| Internal rate of return | | 48.9% |
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sydney_harbour_fuel_practice_assignment_answer_sheet_revised_2_1.xls
