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Equity Analysis of a Project

Equity Analysis of a Project

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Published by Vampire
By Prof Damodaran.
By Prof Damodaran.

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Published by: Vampire on Jun 28, 2008
Copyright:Attribution Non-commercial

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09/27/2012

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CAPITAL BUDGETING WORKSHEET
5
Equity Analysis of a Project 
INPUT SHEET: USER ENTERS ALL BOLD NUMBERS
 INITIAL INVESTMENT CASHFLOW DETAILS DISCOUNT RA
Initial Investment=
$50,000
Revenues in year 1=
$40,000
 Approach(1:Dire
Opportunity cost (if any)=
$7,484
Var. Expenses as % of Rev=
50%
1. Discount rate =Lifetime of the investment
10
Fixed expenses in year 1=
0
2a. BetaSalvage Value at end of project=
$10,000
Tax rate on net income=
40%
b. Riskless rate=Deprec. method(1:St.line;2:DDB)=
2
If you do not have the breakdown of fixed and variable c. Market risk prTax Credit (if any )=
10%
expenses, input the entire expense as a % of revenues. d. Debt Ratio =Other invest.(non-depreciable)=
0
e. Cost of BorrowDiscount rate use
WORKING CAPITAL
Initial Investment in Work. Cap=
$10,000
Working Capital as % of Rev=
25%
Salvageable fraction at end=
100%
GROWTH RATES1 2 3 4 5 6 7 
Revenues Do not enter
10.00% 10.00% 10.00% 10.00% 0.00% 0.00%
Fixed Expenses Do not enter
10.00% 10.00% 10.00% 10.00% 0.00% 0.00%
 
CAPITAL BUDGETING WORKSHEET
6
Default: The fixed expense growth rate is set equal to the growth rate in revenues by default.YEAR0 1 2 3 4 5 6 7INITIAL INVESTMENTInvestment $50,000- Tax Credit $5,000Net Investment $45,000+ Working Cap $10,000+ Opp. Cost $7,484+ Other invest. $0Initial Investment $62,484SALVAGE VALUEEquipment $0 $0 $0 $0 $0 $0 $0Working Capital $0 $0 $0 $0 $0 $0 $0OPERATING CASHFLOWSLifetime Index 1 1 1 1 1 1 1Revenues $40,000 $44,000 $48,400 $53,240 $58,564 $58,564 $58,564-Var. Expenses $20,000 $22,000 $24,200 $26,620 $29,282 $29,282 $29,282- Fixed Expenses $0 $0 $0 $0 $0 $0 $0EBITDA $20,000 $22,000 $24,200 $26,620 $29,282 $29,282 $29,282- Depreciation $10,000 $8,000 $6,400 $5,120 $4,096 $3,277 $2,621EBIT $10,000 $14,000 $17,800 $21,500 $25,186 $26,005 $26,661-Tax $4,000 $5,600 $7,120 $8,600 $10,074 $10,402 $10,664EBIT(1-t) $6,000 $8,400 $10,680 $12,900 $15,112 $15,603 $15,996+ Depreciation $10,000 $8,000 $6,400 $5,120 $4,096 $3,277 $2,621-
Work. Cap $0 $1,000 $1,100 $1,210 $1,331 $0 $0NATCF ($62,484) $16,000 $15,400 $15,980 $16,810 $17,877 $18,880 $18,618Discount Factor 1 1.11 1.23 1.36 1.5 1.66 1.84 2.04Discounted CF ($62,484) $14,455 $12,570 $11,784 $11,200 $10,761 $10,268 $9,148
Investment MeasuresNPV = $47,928IRR = 23.55%ROC = 60.12%
 
CAPITAL BUDGETING WORKSHEET
7
BOOK VALUE & DEPRECIATIONBook Value (beginning) $50,000 $40,000 $32,000 $25,600 $20,480 $16,384 $13,107Depreciation $10,000 $8,000 $6,400 $5,120 $4,096 $3,277 $2,621

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