83° Identity evo broad ways a business can grow. Is growth for its own sake w desirable abjective? Why? Growth can be achieved by expanding curent operations or making investments in ew aciviis. From the shareholder's perspective, growth for its own sake snot desirable, Shareholders only want row that maintains or ineeases thei eur. past and cannot be changed by an action (Le. accepting a projet) today. They are never relevant 0 Investment decisions because they are not incremental. Sunk cots may have been necessary to get "9 the stage of making an investment decision but they donot come about because a project is accepted817 seg wo eg apd zroford aren aq 25 Gepno en IM SL IETAL ©) ® ateyena 01 nok pose anny sioBeue Suu ay) Aono Jo sme Ff rT ASE Se TET sonia, oq oon saaiemem glen My, za10m AgN 20 yA 26m sie PEEL OG OT 29140 [eat aus aq snore 05 ‘py se yt ames on sf «Senos oes pang spose 9 THA STR ou yo pas ames amp a aslo a0 05 fy se sts ones ogy su aofond « Sanenfeso 20} a9e4 Noo venosdde omy SE IEAG ETS(®) Installed cost of new asset, (©) Change in net working capita Add increase in raw materials 2500 (© Inst catay Installed cost of new eset ‘Ad increase net working xpita ‘Which projects should be accepted and which should be rejected? Why? Using equation 8.1 NPY = 15000 1.1274 18 00,D sso J0 pa a FAVES PHO PE Y FDSTONT aU aourydooe 00 8 AL og HAN, vesovi= Pm «ICO = FNM ELE = YT -agyven zpjoqaneys osranop ys ondope mq su so, aN anon sy se PABST STATOR T PATENT "yeom spjoqsves osesrur oouedoove yxy aap soto! esa JO SAaN 2804 oy, PSRBDHT HT PIGGY PUY HISSTON "wousyunsouvidsooe mo se Aan 2 SUN on sonr-s= szso9 +HOSEOL+ 9ELIG+ SOIT OI + LLTESS + 0L949 01 + ys IU6L + 45'8768 +000 SE—=Production oss Initial outay= 200 000-452 000=252 000, ‘Terminal value= rum of working capital = 52.000 Salis ~ 70000 4~280 000 Initial uty B19 307-5spafoad am 2p soy Hs yweaspom snomed oq joumarpanntaragy + rane 1d goo osts sue seq, + "9185 40% 05 408 sPOOHJO BOD.» popnosd dq 10 eq) dysiouied w aheq 24315 PUY YEW 818 rar apany arya pe a 2495 poysgeso 29 pnoysssouisng a RIEL POP §% 000 E> poteroje> are sSuFES © 0Og x ODD SE FatHMOqeo ae See IPTGYear 7 T z z z z s Teta tay 300 00 Sales 600000 | 700000} s00.000| $00.00] 400.000, (Cost of goods sold 300 000] 350000 | 250.000} 250.000] 200.000, Wipes =230000 | -250 000 | 250 000] 250.900) 250.000, Change in working capital* | 15 000 $000 | 10.000, | — soo} 20000 ‘Asset overhaul 27000 Sale of snsets 0 000 Neteash flows B15 000 | 175 000 | — #5 006 | 110 00) 27 000] 5000 | 0 o00 PvP 1] osse7| 07305] oszas| oss37|_nasst| 0.3898 Py 315 000 | 9s 290.5 [32 972.5] — 65 4 | —Ta 400.9] 2 20.5] 23 388 NPV 3004754 IRR =19.80% + working capital eqs 1o 59% ofthe next years revenues i equited atthe star ofeach year. The fst working capital eash cutfow st be made atthe stat ofthe projec. ‘Working capital i not used and is remains inthe fim until the projets completed We nsed to calculate the change in working itl french yea o see how much more is equied forthe following year (years O~ 2) o how mach ised up each year {pears 3-5). Te year 6 cashflow isthe retrn ofthe year § working capital mount when te rae is completed, The allowing {able shows the annual amourds used fr this calelation, 35000] 25000] 35 000] a0 ono ‘Working capital required | ~15 000 =s.000| 10.000, o| “saoo| 20000 Change in working capital_ | __-15 000pofead om