Strategy 1

Demand 5 % increas 100,000 105,000 110,250 115,763 121,551

Selling price 8 8 8 8 8
variable cost 3.00 3.00 2.95 2.95 2.90
contribution sale-vairable 5.00 5.00 5.05 5.05 5.10
inflation 1.03 1.06 1.09 1.13 1.16
inflation contribution b9*b10 5.15 5.30 5.52 5.68 5.91
Sale b12*b5 515,000 556,973 608,374 657,968 718,641
interest rate factor 10% 0.91 0.83 0.75 0.68 0.62
Pv of cfs 468,182 460,308 457,081 449,401 446,219
Sum pv of cfs 2,281,191

Evaluation & computation IRR

Year 1 2 3 4 5
Sale 458,865 550,236 667,634 809,296 992,436
fixed cost (114,400) (118,976) (123,735) (128,684) (133,832)
Taxable Profit 344,466 431,262 543,902 680,615 858,609
tax charge able 30% (103,340) (129,379) (163,171) (204,185) (257,583)
capital Allowance 112,500 84,375 63,281 47,461 142,383
profit after tax 353,626 386,258 444,013 523,892 743,409
Present value (10%) 0.9091 0.8264 0.7513 0.6830 0.6209
(1,500,000) 321,478 319,222 333,593 357,825 461,599
NPv (10%) 321,478

Present value (20%) 0.8333 0.6944 0.5787 0.4823 0.4019

(1,500,000) 294,689 268,235 256,952 252,648 298,760
NPV (20%) (128,717)
IRR 17.14% > Capital cost 10%
Roce
Contribution 458,865 550,236 667,634 809,296 992,436
Fixed Cost (114,400) (118,976) (123,735) (128,684) (133,832)
depriciation (300,000) (300,000) (300,000) (300,000) (300,000)
(1500000/5)
EBIT 44,465 131,260 243,899 380,611 558,604
Total Profit 1,358,839
Average profit 271,768
Average investment 750,000
Roce 36% > 20%
 Strategy 2
15% increase 110,000 126,500 145,475 167,296 192,391
7 7 7 7 7
2.95 2.90 2.80 2.70 2.55
4.05 4.10 4.20 4.30 4.45
1.03 1.06 1.09 1.13 1.16
4.17 4.35 4.59 4.84 5.16
458,865 550,236 667,634 809,296 992,436
0.909 0.826 0.751 0.683 0.621
417,150 454,740 501,603 552,760 616,225
Sum pv of cfs 2,542,478

Capital allowance
1 year 25% of (1500000*30%) 112,500
2 year 75 % of 1 year 84,375
3 year 75 % of 2 year 63,281
4 year 75 % of 3 year 47,461
5 year remainin of 450000 142,383

total of 1500000 *30% 450,000