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    Template For NPV and FCF

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    Ankita Bindal
    This document contains financial information and calculations related to old and new packaging equipment. It includes tables showing the after-tax salvage value and tax benefits of old equipment, as well as financial analyses of the erosion caused by a new product and of investing in the new packaging equipment.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd

    Template For NPV and FCF

    Uploaded by

    Ankita Bindal
    33 views8 pages
    This document contains financial information and calculations related to old and new packaging equipment. It includes tables showing the after-tax salvage value and tax benefits of old equipment, as well as financial analyses of the erosion caused by a new product and of investing in the new packaging equipment.

    Original Description:

    Template to Find NPV and FCF of project

    Original Title

    Template for NPV and FCF

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    © © All Rights Reserved

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    XLSX, PDF, TXT or read online from Scribd

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    This document contains financial information and calculations related to old and new packaging equipment. It includes tables showing the after-tax salvage value and tax benefits of old equipment, as well as financial analyses of the erosion caused by a new product and of investing in the new packaging equipment.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    33 views8 pages

    Template For NPV and FCF

    Uploaded by

    Ankita Bindal
    This document contains financial information and calculations related to old and new packaging equipment. It includes tables showing the after-tax salvage value and tax benefits of old equipment, as well as financial analyses of the erosion caused by a new product and of investing in the new packaging equipment.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    You are on page 1of 8

    Answer to Question 1

    NPV (millions) = $3.00

    This is a hypothetical answer to Question 1.

    You must use this answer in Step 2 regardless of the answer you obtained for Question 1.

    Don’t worry if you did not get this answer. I just picked a number – it is not necessarily correct.
    d for Question 1.

    t necessarily correct.
    Table 2a
    After-tax salvage value of old packaging equipment
    All dollar and volume figures are in millions

    Cost of capital = 15%


    Tax rate = 35%
    Book Value = $9.00

    Year 2010
    Salvage Value $1.00

    After-tax salvage value = $0.65 Salavage value × (1 − tax rate)

    ©2004 M. P. Narayanan 2A
    Table 2b
    Tax benefits from depreciation of old packaging equipment
    All dollar and volume figures are in millions

    Cost of capital = 15%


    Tax rate = 35%
    Book Value = $9.00

    Year 2010 2011 2012


    Depreciation $4.50 $4.50
    Salvage Value

    Annual benefit from depreciation $2.93 $2.93 Depreication × (1 − tax rate)


    PV of tax benefit = $4.76 PV of previous line at cost of capital

    ©2004 M. P. Narayanan 2B
    Table 3
    Financial Analysis of Erosion of Mach I due to Mach O
    All dollar and volume figures are in millions

    Cost of capital = 15%


    Tax rate = 35%
    Capital Expenditure = $0
    Salvage Value = 0% of capital expenditure

    Year 2010 2011 2012 2013


    Price per unit $1.50 $1.50 $1.50
    Volume Loss (5.00) (6.00) (2.50)
    Cost of goods sold per unit $0.65 $0.65 $0.65
    SG&A cost reduction ($1.60) ($1.47) ($1.37)
    Depreciation
    Working capital/Revenue* 7% 7% 7%

    Book Value 0.00 0.00 0.00 0.00


    Working Capital reduction (0.53) (0.63) (0.26) 0.00 Working capital/Revenue × Revenue

    Salvage Value

    Revenue ($7.50) ($9.00) ($3.75) Price per unit × Volume Loss


    Cost of goods sold $3.25 $3.90 $1.63 COGS per unit × Volume Loss
    SG&A costs $0.00 $1.60 $1.47 $1.37 From data
    Depreciation $0.00 $0.00 $0.00
    Profit from asset sale
    Taxable income $0.00 ($2.65) ($3.63) ($0.76)
    Tax $0.00 $0.93 $1.27 $0.26
    NOPAT $0.00 ($1.72) ($2.36) ($0.49)
    Depreciation $0.00 $0.00 $0.00
    Profit from asset sale $0.00 $0.00 $0.00 $0.00
    Operating cash flow $0.00 ($1.72) ($2.36) ($0.49)
    Change in working capital $0.53 $0.11 ($0.37) ($0.26)
    Capital Expenditure $0.00
    Cash flow from asset sale
    Free Cash Flow $0.53 ($1.62) ($2.73) ($0.75)

    PV of erosion = ($3.4388)

    ©2004 M. P. Narayanan 3A
    *This ratio provides the working capital needed at the beginning of a year as a percentage of the
    projected revenues for that year. This is the total amount of working capital needed for a year and not
    the incremental need for that year.

    ©2004 M. P. Narayanan 4A
    Working capital/Revenue × Revenue

    ©2004 M. P. Narayanan 5A
    Table 4
    Financial Analysis of New Packaging Equipment
    All dollar and volume figures are in millions

    Cost of capital = 15%


    Tax rate = 35%
    Capital Expenditure = $24.00
    Salvage Value = 0% of capital expenditure
    Percentage saving in COGS/unit = 19.65%

    Year 2010 2011 2012 2013 2014 2015 2016


    Depreciation 20.00% 32.00% 19.20% 11.52% 11.52% 5.76%
    Book Value $24.00 $19.20 $11.52 $6.91 $4.15 $1.38 $0.00
    Working Capital $0.20 $0.20 $0.20 $0.20 $0.20 $0.20 $0.00
    Salvage Value $0.00

    COGS per unit (from Exhibit 1) $1.80 $1.80 $1.65 $1.65 $1.65 $1.95
    Savings in COGS per unit $0.35 $0.35 $0.32 $0.32 $0.32 $0.38
    Volume (from Exhibit 1) 12 21 30 30 22 14

    Revenue
    Cost of goods sold $4.24 $7.43 $9.73 $9.73 $7.13 $5.36
    SG&A costs
    Depreciation ($4.80) ($7.68) ($4.61) ($2.76) ($2.76) ($1.38)
    Profit from asset sale $0.00
    Taxable income $0.00 ($0.56) ($0.25) $5.12 $6.96 $4.37 $3.98
    Tax $0.00 $0.19 $0.09 ($1.79) ($2.44) ($1.53) ($1.39)
    NOPAT $0.00 ($0.36) ($0.16) $3.33 $4.53 $2.84 $2.59
    Depreciation $4.80 $7.68 $4.61 $2.76 $2.76 $1.38
    Profit from asset sale $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
    Operating cash flow $0.00 $4.44 $7.52 $7.94 $7.29 $5.60 $3.97
    Change in working capital ($0.20) $0.00 $0.00 $0.00 $0.00 $0.00 $0.20
    Capital Expenditure ($24.00)
    Cash flow from asset sale $0.00
    Free Cash Flow ($24.20) $4.44 $7.52 $7.94 $7.29 $5.60 $4.17

    NPV of new equipment = ($0.6820)

    *This ratio provides the working capital needed at the beginning of a year as a percentage of the projected revenues for that
    year. This is the total amount of working capital needed for a year and not the incremental need for that year.

    ©2004 M. P. Narayanan 4A

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