The initial investment needed to start $70,000 Base Case intial outlay

Expected to have a life of 3 yrs

After four years, the salvage value $10,000

Base Case
Year 1 Year 2 Year 3 Tax= 45%
Sales $75,000 $75,000 $75,000 WACC= -2%
Costs $35,000 $35,000 $35,000
Depr. $15,000 $15,000 $15,000
EBIT $25,000 $25,000 $25,000
Taxes $11,250 $11,250 $11,250
NOPAT $13,750 $13,750 $13,750
+Depr. $15,000 $15,000 $15,000
Net Op. CF $28,750 $28,750 $28,750
operating cash flow at end of yr 1=ow at end of yr 2=
Year 0 Year 1 Year 2 Year 3
Initial Cost -$70,000
Op. CF $28,750 $28,750 $28,750
NOWC CF -$15,000 $0 $0 $15,000
Salvage CF 0 $10,000
Net CF -$85,000 $28,750 $28,750 $53,750
Base case total after-tax cash flow at end of yr 3=

Best case
Year 1 Year 2 Year 3 Tax= 45%
Sales $85,800 $85,800 $85,800 WACC= -5%
Costs $33,700 $33,700 $33,700
Depr. $15,000 $15,000 $15,000
EBIT $37,100 $37,100 $37,100
Taxes $16,695 $16,695 $16,695
NOPAT $20,405 $20,405 $20,405
+Depr. $15,000 $15,000 $15,000
Net Op. CF $35,405 $35,405 $35,405

Year 0 Year 1 Year 2 Year 3

Initial Cost -$70,000
Op. CF $35,405 $35,405 $35,405
NOWC CF -$12,000 $0 $0 $12,000
Salvage CF 0 $10,000
Net CF -$82,000 $35,405 $35,405 $57,405

Worst case
Year 1 Year 2 Year 3 Tax= 50%
Sales $64,800 $64,800 $64,800 WACC= 0%
Costs $36,375 $36,375 $36,375
Depr. $15,000 $15,000 $15,000
EBIT $13,425 $13,425 $13,425
Taxes $6,713 $6,713 $6,713
NOPAT $6,713 $6,713 $6,713
+Depr. $15,000 $15,000 $15,000
Net Op. CF $21,713 $21,713 $21,713

Year 0 Year 1 Year 2 Year 3

Initial Cost -$70,000
Op. CF $21,713 $21,713 $21,713
NOWC CF -$18,000 $0 $0 $18,000
Salvage CF 0 $10,000
Net CF -$88,000 $21,713 $21,713 $49,713

x p(x) x*p(x) (exp-x)^2 p(x)*(exp-x)^2

npv probability
Base $31,380.61 50% $15,690 $3,454,076 $1,727,038
Best $61,452.70 20% $12,291 $1,019,563,733 $203,912,747
Worst $5,137.50 30% $1,541 $594,608,541 $178,382,562
Exp NPV $29,522 variance= 384,022,347
Std Dev= $19,596

sales unit price v.cost f.cost capital

-20 -$15,651 -$15,651 $14,341.00 $7,046.00 $51,169.00
20 $26,918 $26,918 -$3,074 $4,222.00 -$21,046.00
Straight Line Depreciation

Growth 0%

Sales NOWC
Year 0 $15,000
Year 1 $75,000 $15,000
Year 2 $75,000 $15,000
Year 3 $75,000

Salvage Value
Book Value
Gain or loss
Tax on SV
Net Terminal CF

NPV=
IRR=
PI=

Sales NOWC
Year 0 $12,000
Year 1 $85,800 $12,000
Year 2 $85,800 $12,000
Year 3 $85,800

Salvage Value
Book Value
Gain or loss
Tax on SV
Net Terminal CF

NPV=
 IRR=
PI=

Sales NOWC
Year 0 $18,000
Year 1 $64,800 $18,000
Year 2 $64,800 $18,000
Year 3 $64,800

Salvage Value
Book Value
Gain or loss
Tax on SV
Net Terminal CF

NPV=
IRR=
PI=

CV (NPV)= 0.66
Depreciable basis: $60,000
Rate/yr 1 $15,000
2 $15,000
3 $15,000

CF Due to Investment in NOWC

-$15,000
$0
$0
$15,000low at end of yr 3=

$10,000
$10,000
$0
$0
$10,000erating cash flow=

$31,380.61 Base case NPV=

13.13% Base case IRR =
1.37

CF Due to Investment in NOWC

-$12,000
$0
$0
$12,000

$10,000
$10,000
$0
$0
$10,000

$61,452.70 Best case NPV =

 23.77%
1.75

CF Due to Investment in NOWC

-$18,000
$0
$0
$18,000

$10,000
$10,000
$0
$0
$10,000

$5,137.50 Worst case NPV =

2.51%
1.06
Q#2 Expected return on A
Economy Probality Return on Return on Return on asset C Std Deviation of A's return
Boom 20% 8% 25% 7% CV of A's return
Avg 50% 10% 22% 9% Required return on A
bust 30% 20% 15% 12% Is A overvalued? (Y/N)
Expected return on B
Invested Risk (beta) (6%+(7.6%-6%)*1.5) Std Deviation of B's return
Asset A $30.00 -1.237 CV of B's return
Asset B $40.00 1.013 Required return on B
Asset C $20.00 -0.5 Total inve 90 Is B overvalued? (Y/N)
wt. of A 30.00 0.333333 Expected return on C
Risk Free r 6% wt. of B 40.00 0.444444 eviation of C's return
Expected m 7% wt. of C 20.00 0.222222 CV of C's return
Required return on C
Is C overvalued? (Y/N)
Correlation Coeff (A,B)
Correlation Coeff (B,C)
Correlation Coeff (C,A)
3-asset portfoilo return
3-asset portfoilo risk (sigma)
3-asset portfoilo risk (beta)
3-asset portfoilo CV
Required return on portfolio
Portfoilo Sharpe ratio
Portfoilo Treynor ratio
 12.60%
4.90%
0.39
4.76%
N Write Y or, N
20.50%
3.77%
0.18
7.01%
N Write Y or, N
9.50%
1.80%
0.19
5.50%
N Write Y or, N
-0.9902
-0.9937
0.9683
15.42%
0.39%
-0.07
0.02
5.93%
24.45
-1.29