Scenario 1 0 1

Djakarta Plant 2022 2023

Cost of Land 2800
Development and Construction of building 13000
Cost of plant and equipment 7000
Sale of land -terminal year
Sale of land -terminal year - Taxable Value
Salvage Value-Building
Salvage Value-P&E
Rehabilitation cost
Change in working capital @6% 2916

Sales Revenue $48,600

Other Revenue
COGS 31590
Fixed Costs 11500
Depreciation -equipment 1246
Depreciation -building 1300
EBIT 2964
Tax @20% then 25% 592.8
Net income 2371.2
Free cash flow (NI+Dep+change in WC) ($22,800) 8124.8
Discount Factor @12% 1 0.892857143
Discount Cash Flow -22800 7254.285714
Cumulative Discount Cash Flow -22800 -15545.7143
PayBack 12
Net Present Value
Payback Period in years
IRR
Discountng factor

scenario 2 0 1
Gladstone Plant 2022 2023

Development and Construction of building 15000

Cost of plant and equipment 6000
Sale of land -terminal year
Sale of land -terminal year - Taxable Value
Salvage Value-Building
Salvage Value-P&E
Rehabilitation cost
Change in working capital @6% 2700
Sales Revenue $45,000
Other Revenue
COGS 75% of sales $33,750
Fixed Costs 4000
Depreciation -equipment 1068
Depreciation -building 1300
EBIT 4882
Tax @30% 1464.6
Opportunity cost 65
Net income 3352.4
Free cash flow (NI+Dep+change in WC) ($21,000) 8609.4
Discount Factor @15% 1 0.869565217
Discount Cash Flow -21000 7486.434783
Cumulative Discount Cash Flow -21000 -13513.5652
PayBack 12
Net Present Value
Payback Period in years
IRR
Discountng factor
 2 3 4 5 6 7 8
2024 2025 2026 2027 2028 2029 2030

3207.6 3528.36 3881.196 4269.3156 4696.24716 5165.871876 5682.4590636

53460 58806 64686.6 71155.26 78270.786 86097.8646 94707.65106

34749 38223.9 42046.29 46250.919 50876.0109 55963.61199 61559.973189

12075 12678.75 13312.6875 13978.321875 14677.237969 15411.099867 16181.654861
996.8 797.44 637.952 510.3616 408.28928 326.631424 261.3051392
1300 1300 1300 1300 1300 1300 1300
4339.2 5805.91 7389.6705 9115.657525 11009.247851 13096.521319 15404.717871
867.84 1161.182 1847.417625 2278.9143813 2752.3119628 3274.1303297 3851.1794678
3471.36 4644.728 5542.252875 6836.7431438 8256.9358884 9822.3909891 11553.538403
9296.52 10623.364 11749.520475 13343.351904 15131.097044 17131.481477 19365.548513
0.797193878 0.711780248 0.6355180784 0.5674268557 0.5066311212 0.4523492153 0.403883228
7411.128827 7561.500661 7467.0326745 7571.3762155 7665.8846603 7749.4122035 7821.4202449
-8134.58546 -573.084799 6893.9478758 14465.324091 22131.208752 29880.620955 37702.0412
12 12 0.9094778791 -11.079016 -22.92633257 -34.64368651 -46.27027729
$25,978.66
3.075789823
49%
12%

2 3 4 5 6 7 8
2024 2025 2026 2027 2028 2029 2030

2889 3091.23 3307.6161 3539.149227 3786.8896729 4051.97195 4335.6099865

 $48,150.00 $51,520.50 $55,126.94 $58,985.82 $63,114.83 $67,532.87 $72,260.17

$36,113 $38,640 $41,345 $44,239 $47,336 $50,650 $54,195

4200 4410 4630.5 4862.025 5105.12625 5360.3825625 5628.4016906
854.4 683.52 546.816 437.4528 349.96224 279.969792 223.9758336
1300 1300 1300 1300 1300 1300 1300
5683.1 6486.605 7304.41775 8146.9773125 9023.6184804 9942.8641038 10912.664086
1704.93 1945.9815 2191.325325 2444.0931938 2707.0855441 2982.8592311 3273.7992258
65 65 65 65 65 65 65
3913.17 4475.6235 5048.092425 5637.8841188 6251.5329363 6895.0048727 7573.8648603
9158.8 9766.7596 10434.057652 11162.226592 11953.467126 12810.584651 13736.943379
0.756143667 0.657516232 0.5717532456 0.4971767353 0.4323275959 0.3759370399 0.3269017738
6925.36862 6421.802975 5965.7063272 5549.5993755 5167.8137055 4815.9732734 4490.631158
-6588.1966 -166.393622 5799.3127051 11348.912081 16516.725786 21332.69906 25823.330218
12 12 0.3109287957 -11.66529974 -24.53995969 -38.352913 -53.15486075
$15,525.30
3.025910733
48%
15%

Task 1

Internal memo

From: Roberts

To: BrizChem Industries, CFO

Subject: Mutual exclusive projects recommendation

NPV refers to the value of all future cash flows (negative and positive) over the entire
investment. The NPV is used to compare the rate of return of different projects (Magn
Marchioni, 2020). If the NPV is positive, it is profitable. If the NPV is negative, it is
However, NPV isn't useful when trying to decide which projects to take on as size or
aren't considered. The NPV uses the time value for money. A negative NPV indicates
expected rate of return will be lower implying the no value will be created by the pro

First project - Djakarta Plant

Net Present Value $25,97

Payback Period in years 3.0757
IRR
Discountng factor

Second project-Gladstone Plant

Net Present Value $25,97
Payback Period in years 3.0757
IRR
Discountng factor

Second project-Gladstone Plant

Net Present Value $15,52

Payback Period in years 3.0259
IRR
Discountng factor

The two projects had a positive NPV. However, a project with a greater NPV should
(Magni & Marchioni, 2020). Based on the above calculations, Djakarta Plant has a gr
of $25978.66 compared to Gladstone Plant with an NPV of $15525.30. The IRR of D
49% is higher than Gladstone at 48%. Therefore, the BrizChem management should s
Djakarta Plant (Peymankar & Ranjbar, 2021). A higher IRR shows the return is highe
required rate of return (WACC) of the company and therefore a project with a higher
be rejected. Though the net present value method is more flexible, it isn't useful when
compare projects of different sizes or analyze a project's return timeline

References

Peymankar, M., Davari, M., & Ranjbar, M. (2021). Maximizing the expected net pres
a project with uncertain cash flows. European Journal of Operational
Research, 294(2), 442-452.

Pertiwi, I. G. A. I. M., Suasira, I. W., Kristinayanti, W. S., Setyono, E. Y., & Andaya
(2018, May). Cash flow optimal analysis on NPV risk based on break eve
various types of housing in housing development projects. In Proceeding
No. 1, pp. 184-193).

Magni, C. A., & Marchioni, A. (2020). Average rates of return, working capital, and
consistency in project appraisal: A sensitivity analysis approach. Internat
Journal of Production Economics, 229, 107769.

Marchioni, A., & Magni, C. A. (2018). Investment decisions and sensitivity analysis:
consistency of rates of return. European Journal of Operational Research
361-372.
 9 10 10
2031 2032 Terminal

770
18000
15200
1170

5500
6250.70497 6875.775467 46473.53

104178.41617 114596.2578
11640
67715.970508 74487.56756
16990.737604 17840.27448
209.04411136 167.2352891
1300 1300
17962.663943 20801.18045 11640
4490.6659858 5200.295113 2910
13471.997957 15600.88534 8730
21856.817536 63541.65076 55203.53
0.360610025 0.321973237 0.321973
7881.7875176 20458.71095 17774.06
45583.828718 66042.53967 83816.6
-57.84428917 -69.4012549 -38.73707

9 10 10
2031 2032 Terminal

660

0
1350

4639.1026855 4963.839874 37304.41

 $77,318.38 $82,730.66
2010
$57,989 $62,048
5909.8217752 6205.312864
179.18066688 143.3445335
1300 1300
11940.592081 13034.00874 2010
3582.1776243 3910.202623 603
65 65 65
8293.4144568 9058.80612 1342
14736.434997 47806.56015 38646.41
0.284262412 0.247184706 0.247185
4189.0145572 11817.05052 9552.801
30012.344775 41829.3953 51382.2
-69.00588174 -85.9744296 -42.47699

d positive) over the entire life of the

f different projects (Magni &
he NPV is negative, it is not.
ects to take on as size or timeline
A negative NPV indicates the
will be created by the project.

$25,978.66
3.07578982
49%
12%
 $25,978.66
3.07578982
49%
12%

$15,525.30
3.02591073
48%
15%

th a greater NPV should be selected

s, Djakarta Plant has a greater NPV
$15525.30. The IRR of Djakarta of
em management should select
shows the return is higher than the
e a project with a higher IRR should
xible, it isn't useful when trying to
rn timeline
1

zing the expected net present value in

ournal of Operational

etyono, E. Y., & Andayani, K. W.

V risk based on break event point of
t projects. In Proceedings (Vol. 1,

rn, working capital, and NPV-

alysis approach. International

and sensitivity analysis: NPV-

of Operational Research, 268(1),
Scenario 1 Original Cost 2023 2024
Equipment 7000 6230 4984
Salvage value 770
Depreciation amount @20% 1246 996.8
Book value 6230 4984 3987.2

Scenario 2 Original Cost 2023 2024

Equipment 6000 5340 4272
Salvage value 660
Depreciation amount @20% 1068 854.4
Book value 5340 4272 3417.6
 2025 2026 2027 2028 2029 2030 2031 2032 2033
3987.2 3189.76 2551.808 2041.4464 1633.157 1306.526 1045.221 836.1764 668.9412

797.44 637.952 510.3616 408.28928 326.6314 261.3051 209.0441 167.2353 133.7882

3189.76 2551.808 2041.446 1633.15712 1306.526 1045.221 836.1764 668.9412 535.1529

2025 2026 2027 2028 2029 2030 2031 2032 2033

3417.6 2734.08 2187.264 1749.8112 1399.849 1119.879 895.9033 716.7227 573.3781

683.52 546.816 437.4528 349.96224 279.9698 223.9758 179.1807 143.3445 114.6756

2734.08 2187.264 1749.811 1399.84896 1119.879 895.9033 716.7227 573.3781 458.7025
 2034 2035
535.1529 428.1223

107.0306 85.62447
428.1223 342.4979

2034 2035
458.7025 366.962

91.7405 73.3924
366.962 293.5696
Calculation of YTM of the CWC using excel: Normal case
Particulars Amount Year 0 Year 1 Year 2
PV 91.7 Particulars 0 1 2
Time 14 Initial Investemnt 5000000
FV 100 Cash Flows 2687500 2741250
Coupon 8 less: Variable cost 675000 688500
YTM 9% Fixed cost 50000 50000
Cost of equity 7.375% Cash inflows -5000000 1962500 2002750
PVF @7.0431 1 0.934203422 0.872736
Valuation of WACC PV of cash flows -5000000 1833374.215 1747872.1
Value of equity 665000000 NPV 1836184
Value of debt 252175000
Cost of equity 7.375% Company Beta Cost of Debt D/E
Cost of debt 9% Hydro Vital 1.7 8.25% 0.43
Tax rate 32% Life Water 1.6 7.75% 0.35
WACC 7.0431%
Since the NPV is positive, the project is considered as a good investment
Worst case
Year 0 Year 1 Year 2
Particulars 0 1 2
Initial Investemnt 5000000
Cash Flows 1803750 1839825
less: Variable cost 1175000 1198500
Fixed cost 50000 50000
Cash inflows -5000000 578750 591325
PVF @7.0431 1 0.934203422 0.872736
PV of cash flows -5000000 540670.2303 516070.63
NPV -2980559

Best case
Year 0 Year 1 Year 2
Particulars 0 1 2
Initial Investemnt 5000000
Cash Flows 3262500 3327750
less: Variable cost 450000 459000
Fixed cost 50000 50000
Cash inflows -5000000 2762500 2818750
PVF @7.0431 1 0.934203422 0.872736
PV of cash flows -5000000 2580736.952 2460024.7
NPV 4620931

Calculation of Ke for GCWC using CAPM:

Ke = RF + Beta*(Market return - RF) = 1.45% + 0.75*

Calculation of Ke for GCWC using CAPM:

Ke = RF + Beta*(Market return - RF) = 1.45% + 0.75*

Recommendations

CWC should invest in this project. Based on the line gr

is highly sensitive because its far away from the norma
case scenario. The best-case scenario is nearer the norm
the CWC should select to invest the project because the
and its less sensitive to changes in price per unit.

Sensitivity analysis
3000000
2000000
1000000
0
-1000000 Year 0 Year 1 Year 2 Year

-2000000
-3000000
-4000000
-5000000
-6000000

Normal Best case Worst c

Other computations and recommendations are as d

Calculation of NPV of CWC's project using excel: S

considered as a good investment.

With the data of Hydro Vital, NPV of the comparab

Since the NPV is negative, so it is not a worthy option

NPV of Life Water using excel: Since the NPV is neg

into this investment.

Calculation of NPV of Best-case scenario using exce

considered as a good investment. The firm should inve

Calculation of NPV in Worst case scenario using ex

is considered as not a good investment. The firm shoul
considered as a good investment. The firm should inve

Calculation of NPV in Worst case scenario using ex

is considered as not a good investment. The firm shoul

References

Peymankar, M., Davari, M., & Ranjbar, M. (2021). Ma

a project with uncertain cash flows. Europ
Research, 294(2), 442-452.

Pertiwi, I. G. A. I. M., Suasira, I. W., Kristinayanti, W.

(2018, May). Cash flow optimal analysis o
various types of housing in housing develo
No. 1, pp. 184-193).

Magni, C. A., & Marchioni, A. (2020). Average rates o

consistency in project appraisal: A sensitiv
Journal of Production Economics, 229, 10

Marchioni, A., & Magni, C. A. (2018). Investment dec

consistency of rates of return. European Jo
361-372.
 Year 3 Year 4
3 4 WACC for Hydro Vital using excel
Cost of Equity 19.19%
2796075 2851996.5 Cost of Debt 8.25%
702270 716315.4 D/E 0.43
50000 50000 Tax rate 34%
2043805 2085681.1 WACC 28.3800%
0.815313 0.7616681833 Year 0 Year 1 Year 2 Year 3
1666341 1588596.9344 Particulars 0 1 2 3
Initial Investemnt 5000000
Cash Flows 2687500 2741250 2796075
Tax rate Cost of equity less: Variable cost 675000 688500 702270
34% 19.19% Fixed cost 50000 50000 50000
36% 22.14% Cash inflows -5000000 1962500 2002750 2043805
PV Factor 1 0.778938 0.606744 0.472615
good investment PV of cash flows -5000000 1528665 1215156 965933.8
NPV -522427.22
Year 3 Year 4 Since the NPV is negative, so it is not a worthy option to enter into this inve
3 4
WACC for Life Water using excel
1876622 1914153.93 Cost of Equity 22.14%
1222470 1246919.4 Cost of Debt 7.75%
50000 50000 D/E 0.35
604151.5 617234.53 Tax rate 36%
0.815313 0.7616681833 WACC 22.4000%
492572.6 470127.90316 Year 0 Year 1 Year 2 Year 3
Particulars 0 1 2 3
Initial Investemnt 5000000
Cash Flows 2687500 2741250 2796075
less: Variable cost 675000 688500 702270
Fixed cost 50000 50000 50000
Year 3 Year 4 Cash inflows -5000000 1962500 2002750 2043805
3 4 PV factor 1 0.735294 0.540657 0.397542
PV of cash flows -5000000 1443015 1082802 812498.8
3394305 3462191.1 NPV -1052018
468180 477543.6
50000 50000 Sensititivity analyis Year 0 Year 1 Year 2 Year 3
2876125 2934647.5 Normal -5000000 1833374 1747872 1666341
0.815313 0.7616681833 Best case -5000000 2580737 2460025 2344942
2344942 2235227.63 Worst case -5000000 540670.2 516070.6 492572.6

Sensiti
WC using CAPM:
4000000
3000000
return - RF) = 1.45% + 0.75*(9.35%- 1.45%) = 7.375%
2000000
 Sensiti
WC using CAPM:
4000000
3000000
return - RF) = 1.45% + 0.75*(9.35%- 1.45%) = 7.375%
2000000
1000000
0
Year 0 Year 1
-1000000
s project. Based on the line graph shown below, the worst-case scenario
-2000000
e its far away from the normal case scenario, in comparison to the best- -3000000
ase scenario is nearer the normal case hence less sensitive. Therefore, -4000000
-5000000
invest the project because the best-case scenario has a positive NPV
-6000000
hanges in price per unit.
Normal

Sensitivity analysis

Year 1 Year 2 Year 3 Year 4

mal Best case Worst case

d recommendations are as described below:

CWC's project using excel: Since the NPV is positive, the project is
estment.

Vital, NPV of the comparable company is calculated using excel:

e, so it is not a worthy option to enter into this investment

g excel: Since the NPV is negative, so it is not a worthy option to enter

Best-case scenario using excel: Since the NPV is positive, the project is
estment. The firm should invest in the project.

Worst case scenario using excel: Since the NPV is negative, the project
od investment. The firm should reject the project at worst case scenario.
estment. The firm should invest in the project.

Worst case scenario using excel: Since the NPV is negative, the project
1
od investment. The firm should reject the project at worst case scenario.

References

M., & Ranjbar, M. (2021). Maximizing the expected net present value in
h uncertain cash flows. European Journal of Operational
4(2), 442-452.

asira, I. W., Kristinayanti, W. S., Setyono, E. Y., & Andayani, K. W.

Cash flow optimal analysis on NPV risk based on break event point of
of housing in housing development projects. In Proceedings (Vol. 1,
4-193).

ni, A. (2020). Average rates of return, working capital, and NPV-

n project appraisal: A sensitivity analysis approach. International
oduction Economics, 229, 107769.

C. A. (2018). Investment decisions and sensitivity analysis: NPV-

of rates of return. European Journal of Operational Research, 268(1),
 Year 4
4

2851996.5
716315.4
50000
2085681.1
0.36813789
767818.232

on to enter into this investment

Year 4
4

2851996.5
716315.4
50000
2085681.1
0.29231047
609666.416

Year 4
1588596.93
2235227.63
470127.903

Sensitivity analysis
 Sensitivity analysis

Year 0 Year 1 Year 2 Year 3 Year 4

Normal Best case Worst case