Break-Even NPV

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Present Value

0
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Sales

Investment PV(Cash Flows

 Break-even NPV
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Present Value

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0 2 4 6 8 10 12

Sales

PV(Inflows) PV(Outflows)
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1
Excel Tips: Breakeven analysis with the Tools|GoalSeek command
2
Dear Agatha,
3 I have developed a model to calculate the NPV of a project. It is based on the
4 number of units that we expect to sell. This is a very uncertain number. How should I
5 proceed to calculate the minimum number of unit to sell in order to achieve a
6 positive NPV? (My professor taught be formulas to do this but I didn't understand
7 his explanations.)
8
Dear Excel user,
9
The Tools|GoalSeek command let you find a number such that the some value in your
10 spreadsheet is equal to something. Below, I show you how to find the quantity sold so that
11 the NPV is 0.
12
13
14
15 Data
16 Discount Rate 15% Price/unit 2
17 Tax Rate 34% V.cost/unit 1
18 Number of periods 5 Fixed cost 1,791
19 # units sold/year 3,000 (Quantity) Investment 1,500
20
21 Cash flow calculation This cell has been name Quantity
Type your intial estimate in this cell.
22 Revenues 6,000.00 Excel will later change it to the level that
23 V.costs 3,000.00 you are looking for.
24 F.costs 1,791.00
25 Dep 300.00
26 Pretax Profit 909.00
27 Tax 309.00
28 Net Profit 600.00
29 Cash flow 900.00
30
31 NPV Calculation
32 Annuity Factor 3.3522
33 PV(CF) 3,017
This cell has been named NPV.
34 NPV 1,517 (NPV)
35
36 To calculate breakeven quantity, proceed as follow:
37 1. Select Tools|GoalSeek
38 2. Set cell: NPV
39 To value: 0
40 By changing cell: Quantity
OK
41
Excell will now change Quantity until it finds an NPV=0.
42 You can check that the NPV is now equal to 0 and that the value in the cell Quantity has
43 been changed to the breakeven quantity that you were looking for.
44
45
46
47
48
49
B19: This cell has been name Quantity
Type your intial estimate in this cell.
Excel will later change it to the level that you are looking for.

B34: This cell has been named NPV.

 Break-Even Profit
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Profit

0
0 2 4 6 8 10 12

Sales

Revenues Fixed Costs Variable Costs Total Costs

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