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    Ilanchelian (P121958) - ZCMC6122 - Individual Assignment 2

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    Ilanchelian Chandran
    This document analyzes the financial projections for a business under base case, optimistic, and pessimistic scenarios. Key metrics like unit sales, price per unit, variable and fixed costs are provided. Financial statements including income statement and cash flows are presented for each scenario. NPV, IRR and probability weighted returns are calculated. The base case NPV is $15,565 with an IRR of 15.1%. The optimistic case has higher NPV and IRR. The pessimistic case has negative NPV and IRR, indicating an unattractive investment. In summary, the base case presents a modest positive investment, while the optimistic scenario is more attractive and the pessimistic scenario is unappealing.

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    Ilanchelian (P121958) - ZCMC6122 - Individual Assignment 2

    Uploaded by

    Ilanchelian Chandran
    28 views24 pages
    This document analyzes the financial projections for a business under base case, optimistic, and pessimistic scenarios. Key metrics like unit sales, price per unit, variable and fixed costs are provided. Financial statements including income statement and cash flows are presented for each scenario. NPV, IRR and probability weighted returns are calculated. The base case NPV is $15,565 with an IRR of 15.1%. The optimistic case has higher NPV and IRR. The pessimistic case has negative NPV and IRR, indicating an unattractive investment. In summary, the base case presents a modest positive investment, while the optimistic scenario is more attractive and the pessimistic scenario is unappealing.

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    Ilanchelian(P121958)_ ZCMC6122_Individual Assignment 2

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    This document analyzes the financial projections for a business under base case, optimistic, and pessimistic scenarios. Key metrics like unit sales, price per unit, variable and fixed costs are provided. Financial statements including income statement and cash flows are presented for each scenario. NPV, IRR and probability weighted returns are calculated. The base case NPV is $15,565 with an IRR of 15.1%. The optimistic case has higher NPV and IRR. The pessimistic case has negative NPV and IRR, indicating an unattractive investment. In summary, the base case presents a modest positive investment, while the optimistic scenario is more attractive and the pessimistic scenario is unappealing.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    28 views24 pages

    Ilanchelian (P121958) - ZCMC6122 - Individual Assignment 2

    Uploaded by

    Ilanchelian Chandran
    This document analyzes the financial projections for a business under base case, optimistic, and pessimistic scenarios. Key metrics like unit sales, price per unit, variable and fixed costs are provided. Financial statements including income statement and cash flows are presented for each scenario. NPV, IRR and probability weighted returns are calculated. The base case NPV is $15,565 with an IRR of 15.1%. The optimistic case has higher NPV and IRR. The pessimistic case has negative NPV and IRR, indicating an unattractive investment. In summary, the base case presents a modest positive investment, while the optimistic scenario is more attractive and the pessimistic scenario is unappealing.

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    Base Case Optimistic Pessimistic

    Unit sales 6000 6500 5500


    Price per unit 80 85 75
    VC per unit 60 58 62
    Fixed cost 50000 45000 55000
    Depreciation 40000
    Year 5
    Costs 200000
    Taxes 0.34
    r 0.12

    Base Case Optimistic Pessimistic


    Sales 480,000.00 552,500.00 412,500.00
    Variable costs 360,000.00 377,000.00 341,000.00
    Fixed costs 50,000.00 45,000.00 55,000.00
    Depreciation 40,000.00 40,000.00 40,000.00
    EBIT 30,000.00 90,500.00 (23,500.00)
    Taxes 10,200.00 30,770.00 (7,990.00)
    NI 19,800.00 59,730.00 (15,510.00)

    Operating CF/yr 59,800.00 99,730.00 24,490.00


    annual oper cf
    Y1 Y2 Y3 Y4 Y5
    Operating CF 59,800.00 59,800.00 59,800.00 59,800.00 59,800.00
    PV factor 1.1200 1.2544 1.4049 1.5735 1.7623
    PV CASH FLOW 53,392.86 47,672.19 42,564.46 38,003.98 33,932.13
    Total PV 215,565.62
    Cost (Year 0) (200,000.00)
    NPV base case 15,565.62 (200,000.00) (+) NPV for base case

    Y1 Y2 Y3 Y4 Y5
    Operating CF 99,730.00 99,730.00 99,730.00 99,730.00 99,730.00
    PV factor 1.1200 1.2544 1.4049 1.5735 1.7623
    PV (discounted) CF 89,044.64 79,504.15 70,985.84 63,380.22 56,589.48
    Total PV 359,504.33
    Cost (200,000.00)
    NPV optimistic case 159,504.33

    Y1 Y2 Y3 Y4 Y5
    Operating CF 24,490.00 24,490.00 24,490.00 24,490.00 24,490.00
    PV factor 1.1200 1.2544 1.4049 1.5735 1.7623
    PV 21,866.07 19,523.28 17,431.50 15,563.84 13,896.28
    Total PV 88,280.97
    Cost (200,000.00)
    NPV pessimistic case (111,719.03)
    undiscounted CF (Base) Optimistic Pessimistic
    IRR (200,000.00) (200,000.00) (200,000.00)
    59,800.00 99,730.00 24,490.00
    59,800.00 99,730.00 24,490.00
    59,800.00 99,730.00 24,490.00
    59,800.00 99,730.00 24,490.00
    59,800.00 99,730.00 24,490.00

    IRR Base case 15.10%


    IRR Optimistic 40.88%
    IRR Pessimistic -14.40%
    Summary NPV IRR Notes/Remark
    Base Case 15,565.62 15.10%
    Optimistic 159,504.33 40.88% Attractive scenario
    Pessimistic (111,719.03) -14.40% Although CF is positive, but return is negative and NPV is negative.
    probablity
    base case 50%
    boom economic 20%
    recession 30%
    Base Case IRR
    15.10%
    Optimistic IRR
    40.88%
    Pessimistic IRR
    -14.40%
    is negative and NPV is negative.
    Y0 Y1 Y2
    Revenues 5,000,000.00 5,000,000.00
    Variable costs (4,000,000.00) (4,000,000.00)
    Depreciation expense (straight line) (250,000.00) (250,000.00)
    Fixed costs (400,000.00) (400,000.00)
    Net Operating Income 350,000.00 350,000.00
    Taxes (105,000.00) (105,000.00)
    NOPAT 245,000.00 245,000.00
    Plus Depreciation 250,000.00 250,000.00
    Minus initial outlay (cutter cost) (1,500,000.00) - -
    Plus salvage value
    Minus increase in working capital (500,000.00) - -
    Recover Working capital
    Cash flow (2,000,000.00) 495,000.00 495,000.00
    12 percent discount rate 1.1200 1.2544
    PV cash flows (2,000,000.00) 441,964.29 394,610.97

    NPV @12% 209,934.36 (2,000,000.00)


    IRR 15.59% 495,000.00
    495,000.00
    209,934.36 495,000.00
    495,000.00
    1,245,000.00
    15.59%
    15.59%
    Y3 Y4 Y5
    5,000,000.00 5,000,000.00 5,000,000.00
    (4,000,000.00) (4,000,000.00) (4,000,000.00)
    (250,000.00) (250,000.00) (250,000.00)
    (400,000.00) (400,000.00) (400,000.00) 350,000.00
    350,000.00 350,000.00 350,000.00
    (105,000.00) (105,000.00) (105,000.00) -0.3 $ 25.00
    245,000.00 245,000.00 245,000.00 200000
    250,000.00 250,000.00 250,000.00 $ 5,000,000.00
    - - -
    250,000.00
    - - -
    500,000.00
    495,000.00 495,000.00 1,245,000.00
    1.4049 1.5735 1.7623
    352,331.22 314,581.45 706,446.44

    2,209,934.36
    $ 20.00
    $ 4,000,000.00
    If Unit sales drop by 10% 200,000.00
    or drop by 20,000 units 0.9
    Now unit sales 180000

    Y0 Y1 Y2
    Revenues 4,500,000.00 4,500,000.00
    Variable costs (3,600,000.00) (3,600,000.00)
    Depreciation expense (straight line) (250,000.00) (250,000.00)
    Fixed costs (400,000.00) (400,000.00)
    Net Operating Income 250,000.00 250,000.00
    Taxes (75,000.00) (75,000.00)
    NOPAT 175,000.00 175,000.00
    Plus Depreciation 250,000.00 250,000.00
    Minus initiial outlay (cutter co (1,500,000.00) - -
    Plus salvage value
    Minus increase in working cap (500,000.00) - -
    Recover Working capital
    Cash flow (2,000,000.00) 425,000.00 425,000.00
    1.1200 1.2544
    PV cash flows (2,000,000.00) 379,464.29 338,807.40

    NPV @12% (42,399.97) (2,000,000.00)


    IRR 11.27% 425,000.00
    425,000.00
    425,000.00
    425,000.00
    1,175,000.00
    Y3 Y4 Y5
    4,500,000.00 4,500,000.00 4,500,000.00
    (3,600,000.00) (3,600,000.00) (3,600,000.00)
    (250,000.00) (250,000.00) (250,000.00)
    (400,000.00) (400,000.00) (400,000.00)
    250,000.00 250,000.00 250,000.00
    (75,000.00) (75,000.00) (75,000.00) -0.3
    175,000.00 175,000.00 175,000.00
    250,000.00 250,000.00 250,000.00
    - - -
    250,000.00
    - - -
    500,000.00
    425,000.00 425,000.00 1,175,000.00
    1.4049 1.5735 1.7623
    302,506.61 270,095.18 666,726.56

    (42,399.9722)
    25 -20
    180000 -3600000
    4,500,000.00
    If price per unit drop by 10% 25
    or drop by 2.5 dollars 0.9
    Now price per unit 22.5

    Y0 Y1 Y2
    Revenues 4,500,000.00 4,500,000.00
    Variable costs (4,000,000.00) (4,000,000.00)
    Depreciation expense (straight line) (250,000.00) (250,000.00)
    Fixed costs (400,000.00) (400,000.00)
    Net Operating Income (150,000.00) (150,000.00)
    Taxes 45,000.00 45,000.00
    NOPAT (105,000.00) (105,000.00)
    Plus Depreciation 250,000.00 250,000.00
    Minus initiial outlay (cutter cost) (1,500,000.00) - -
    Plus salvage value
    Minus increase in working capital (500,000.00) - -
    Recover Working capital
    Cash flow (2,000,000.00) 145,000.00 145,000.00
    1.1200 1.2544
    PV cash flows (2,000,000.00) 129,464.29 115,593.11

    NPV @12% (1,051,737.31) (2,000,000.00)


    IRR -7.18% 145,000.00
    145,000.00
    145,000.00
    145,000.00
    895,000.00
    Y3 Y4 Y5
    4,500,000.00 4,500,000.00 4,500,000.00
    (4,000,000.00) (4,000,000.00) (4,000,000.00)
    (250,000.00) (250,000.00) (250,000.00)
    (400,000.00) (400,000.00) (400,000.00)
    (150,000.00) (150,000.00) (150,000.00)
    45,000.00 45,000.00 45,000.00 -0.3 22.5
    (105,000.00) (105,000.00) (105,000.00) 200,000.00
    250,000.00 250,000.00 250,000.00 4,500,000.00
    - - -
    250,000.00
    - - -
    500,000.00
    145,000.00 145,000.00 895,000.00
    1.4049 1.5735 1.7623
    103,208.14 92,150.12 507,847.04
    -20
    (4,000,000.00)
    If variable cost increase by 10% 20
    or increase by $2 1.1
    Now variable cost 22

    Y0 Y1
    Revenues 5,000,000.00
    Variable costs (4,400,000.00)
    Depreciation expense (straight line) (250,000.00)
    Fixed costs (400,000.00)
    Net Operating Income (50,000.00)
    Taxes 15,000.00
    NOPAT (35,000.00)
    Plus Depreciation 250,000.00
    Minus initial outlay (cutter cost) (1,500,000.00) -
    Plus salvage value
    Minus increase in working capital (500,000.00) -
    Recover Working capital
    Cash flow (2,000,000.00) 215,000.00
    12 percent discount rate 1.1200
    PV cash flows (2,000,000.00) 191,964.29

    NPV @12% (799,402.97) (2,000,000.00)


    IRR -2.35% 215,000.00
    215,000.00
    (799,402.97) 215,000.00
    215,000.00
    965,000.00
    Y2 Y3 Y4 Y5
    5,000,000.00 5,000,000.00 5,000,000.00 5,000,000.00
    (4,400,000.00) (4,400,000.00) (4,400,000.00) (4,400,000.00)
    (250,000.00) (250,000.00) (250,000.00) (250,000.00)
    (400,000.00) (400,000.00) (400,000.00) (400,000.00)
    (50,000.00) (50,000.00) (50,000.00) (50,000.00)
    15,000.00 15,000.00 15,000.00 15,000.00
    (35,000.00) (35,000.00) (35,000.00) (35,000.00)
    250,000.00 250,000.00 250,000.00 250,000.00
    - - - -
    250,000.00
    - - - -
    500,000.00
    215,000.00 215,000.00 215,000.00 965,000.00
    1.2544 1.4049 1.5735 1.7623
    171,396.68 153,032.75 136,636.39 547,566.92

    1,200,597.03
    (50,000.00)

    -0.3 $ 25.00 $ 22.00


    200000 $ 4,400,000.00
    $ 5,000,000.00
    If fixed cost increase by 10% 400,000.00
    or increase by $40000 1.1
    Now fixed cost 440,000.00

    Y0
    Revenues
    Variable costs
    Depreciation expense (straight line)
    Fixed costs
    Net Operating Income
    Taxes
    NOPAT
    Plus Depreciation
    Minus initial outlay (cutter cost) (1,500,000.00)
    Plus salvage value
    Minus increase in working capital (500,000.00)
    Recover Working capital
    Cash flow (2,000,000.00)
    12 percent discount rate
    PV cash flows (2,000,000.00)

    NPV @12% 109,000.63


    IRR 13.87%

    109,000.63
    Y1 Y2 Y3 Y4
    5,000,000.00 5,000,000.00 5,000,000.00 5,000,000.00
    (4,000,000.00) (4,000,000.00) (4,000,000.00) (4,000,000.00)
    (250,000.00) (250,000.00) (250,000.00) (250,000.00)
    (440,000.00) (440,000.00) (440,000.00) (440,000.00)
    310,000.00 310,000.00 310,000.00 310,000.00
    (93,000.00) (93,000.00) (93,000.00) (93,000.00)
    217,000.00 217,000.00 217,000.00 217,000.00
    250,000.00 250,000.00 250,000.00 250,000.00
    - - - -

    - - - -

    467,000.00 467,000.00 467,000.00 467,000.00


    1.1200 1.2544 1.4049 1.5735
    416,964.29 372,289.54 332,401.38 296,786.94

    (2,000,000.00) 2,109,000.63
    467,000.00
    467,000.00
    467,000.00
    467,000.00
    1,217,000.00
    Y5
    5,000,000.00
    (4,000,000.00)
    (250,000.00)
    (440,000.00) 310,000.00
    310,000.00
    (93,000.00) -0.3 $ 25.00
    217,000.00 200000
    250,000.00 $ 5,000,000.00
    -
    250,000.00
    -
    500,000.00
    1,217,000.00
    1.7623
    690,558.48
    $ 20.00
    $ 4,000,000.00

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