rate of interest 8%

Student 1 NPV NPV(r,V!,V2,V3,V4…....)

Year 1 -5000 $ -78.54
Year 2 -5000
Year 3 4000
Year 4 4000
Year 5 4000
2000

Student 2
Year 1 -8000 $ -57.81
Year 2 -2000
Year 3 6000

Year 4 4000

Year 5 2000

2000
Student 3
Year 1 -5000 $ 147.96 400
Year 2 -5000
Year 3 6000
Year 4 4000
Year 5 2000
2000

Q. Consider the following two projects, and assume a company’s cost of cap
assuming cash flow ($ '000) at end of respective years below. Which projects
a single project, which project should it choose?

Year 1 Year 2 Year 3

Project 1 -40 130 19

Project 2 -80 36 36
Option 1
- Pay
Once

Option 2
- Pay in 5
Annual
Installme
nts
Cost of
Capital

NPV
PV
V2,V3,V4…....)

NPV
PMT
ROW() 8
COLUMN() 14
Goal Seek
Scenario Manager

r=20% (0.2)
Total
Time/ 1 2 3 Cash
Year Flow

Investme
nt 1 Cash -10000 24000 -14000 0
Flow ($
'000)

Investme
nt 2 Cash -6000 8000 -1000 1000
Flow ($
'000)

Year End NPV1 Rs231.48

Year End NPV2 (Rs23.15)

ume a company’s cost of capital is 15 percent. Find the IRR and NPV of each project,
e years below. Which projects add value to the company? If the company can choose only
?

Rate of
0.15
Return

Year 4 NPV IRR NPV@IRR

26 Err:523 Rs90.87
36 16.65% Rs1.91
 $
11,000.00

$- $- $- $-
$ -3,000.00
3,000.00 3,000.00 3,000.00 3,000.00

12%
Scenario Summary
Current Values: best most likely worst

Changing Cells:
price $ 2.50 $ 5.00 $ 4.00 $ 2.50
unit_cost $ 0.40 $ 1.00 $ 0.75 $ 0.40
fixed_cost $ 25,000.00 $ 65,000.00 $ 45,000.00 $ 25,000.00
Result Cells:
profit $ 88,400.00 $ 151,000.00 $ 130,500.00 $ 88,400.00
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
2 marks question
Scenario Summary
Current Values: best most likely worst
Changing Cells:
price $ 2.50 $ 5.00 $ 4.00 $ 2.50
unit_cost $ 0.40 $ 1.00 $ 0.75 $ 0.40
fixed_cost $ 25,000.00 $ 65,000.00 $ 45,000.00 $ 25,000.00
Result Cells:
profit $ 88,400.00 $ 151,000.00 $ 130,500.00 $ 88,400.00
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
Scenario 1 - Lemonade Stall
Price per glass of Lemonade $ 5.00
Monthly Demand for Lemonades 54000
Unit Cost/ Lemonade $ 1.00 Price
Total Fixed Cost $ 65,000.00 Unit Cost
Monthly Revenues $ 270,000.00 Fixed Cost
Variable Cost $ 54,000.00
Overall Profits $ 151,000.00
Best Case Most Likely Worst Case
MO ML PS
$5.00 $4.00 $2.50
$1.00 $0.75 $0.40
$65,000.00 $45,000.00 $25,000.00
A company wants to review best, worst, and most-likely scenarios for the sales of an automobile glass wiper blades by varying the
1 sales price. IT makes use of Scenario Manager to vary more than two inputs in a sensitivity analysis? Suppose it has created the
value (NPV) of the company based upon next 5 years cash flows. For each scenario, the company looks at the firm’s NPV and each

Automobile Component Manufacturer Example

Tax Rate 15%

Year 1 Sales 10000
Annual Sales Growth 10%
Year 1 Price $ 7.50
Year 1 Cost $ 6.00
Interest Rate 15%
Annual Increase in Costs 5%
Annual Price Increase 3%
Year 1 2 3 4
Unit Sales 10000 11000 12100 13310
Unit Price $ 7.50 $ 7.73 $ 7.96 $ 8.20
Unit Cost $ 6.00 $ 6.30 $ 6.62 $ 6.95
Revenues $ 75,000.00 $ 84,975.00 $ 96,276.68 $ 109,081.47
Costs $ 60,000.00 $ 69,300.00 $ 80,041.50 $ 92,447.93
Profits Before Tax $ 15,000.00 $ 15,675.00 $ 16,235.18 $ 16,633.54
Tax $ 2,250.00 $ 2,351.25 $ 2,435.28 $ 2,495.03
Profits After Tax $ 12,750.00 $ 13,323.75 $ 13,799.90 $ 14,138.51

NPV $45,423.75 =NPV(intrate,B19:F19)

obile glass wiper blades by varying the values of Year 1 sales, annual sales growth, and Year
y analysis? Suppose it has created the following three scenarios related to the net present
mpany looks at the firm’s NPV and each year’s after-tax profit.

Best Case Most Likely Worst Case

MO ML PS
Year 1 Sales 20000 10000 5000
Annual Sales Growth 0.2 0.1 0.02
Year 1 Price $ 10.00 $ 7.50 $ 5.00

5
14641
$ 8.44
$ 7.29
$ 123,589.31
$ 106,777.36
$ 16,811.95
$ 2,521.79
$ 14,290.15