Expansion of Toothpaste Manufacturing Facility

Colgate Company is contemplating expanding its toothpaste manufactur

products. The company has compiled the following information for the e
Initial Investment for Facility Expansion: 50,00,000
Tax Rate: 22%
Required Rate of Return: 10%
Useful Life of the Expansion: 10 years
Salvage Value at the end of 10 years: 2000000
Colgate Company plans to use the WDV method for the expansion p
Considering the provided data, analyze the feasibility of Colgate Compa
facility. Calculate the net present value (NPV), internal rate of return (IR
the financial viability of the expansion based on these metrics and provid
process.

Scenario Analysis for Sales:

Normal Case Scenario:

Sales:
Selling Price :
variable cost pu :
fixed cost:
probability:

=======================================================

Initial investment 5,000,000

Tax Rate 22%
Wacc 10%
Salvage Value 2000000
1 Calculation of Depreciation

Initial investment 5,000,000

Salvage value 2,000,000
useful life 10

Dep Rate 9%

Book Value
Dep

2 Calculation of cash flows

Particulars

Total sales
Total variable cost
Fixed costs
depriciation
Operating profit
Tax: 22%
Profit after Tax
depreciation
annual cash flow
salvage value
Cash flows
NPV

Normal Case Scenario

Best Scenario
Worst Scenario
cility
its toothpaste manufacturing facility to keep up with the growing demand for oral car
wing information for the expansion project:
0,000

thod for the expansion project.

sibility of Colgate Company's proposed expansion of its toothpaste manufacturing
internal rate of return (IRR), and payback period for the expansion project. Evaluate
n these metrics and provide recommendations for Colgate Company's decision-makin

1,200,000
3.5
1.5
1,200,000
50%

=====================================================================
yrs

0 1 2
5,000,000 4,562,218 4,162,766
437,782 399,452

year 0 year 1 year 2

4,262,500 4,262,500
1,162,500 1,162,500
200,000 200,000
437,782 399,452
2,462,218 2,500,548
541688 550121
1920530 1950428
437782 399452
2358312 2349879

(5,000,000) 2,358,312 2,349,879

 10,104,415.19

NPV PROB
1,956,719 0.5
10,703,510 0.3
(5,112,605) 0.2

Prob adjusted NPV ₹ 3,166,891.70

he growing demand for oral care
Current Scenario

selling price
units
variable cost p.u
Fixed Costs
s toothpaste manufacturing
he expansion project. Evaluate
gate Company's decision-making

Best Scenario:
Sales: 1,500,000
Selling Price : 4
variable cost pu : 1.25
fixed cost: 1,100,000
probability: 30%

=====================================================================
 3 4 5 6
3,798,289 3,465,724 3,162,278 2,885,400
364,477 332,565 303,447 276,878

year 3 year 4 year 5 year 6

4,262,500 4,262,500 4,262,500 4,262,500

1,162,500 1,162,500 1,162,500 1,162,500
200,000 200,000 200,000 200,000
364,477 332,565 303,447 276,878
2,535,523 2,567,435 2,596,553 2,623,122
557815 564836 571242 577087
1977708 2002599 2025312 2046035
364477 332565 303447 276878
2342185 2335164 2328758 2322913

2,342,185 2,335,164 2,328,758 2,322,913

Scenario

2.75
1,550,000
0.75
200,000

Worst Scenario:
Sales: 900000
Selling Price : 3
variable cost pu : 1.75
fixed cost: 1,400,000
probability: 20%

=====================================================================
 7 8 9 10
2,632,764 2,402,249 2,191,916 2,000,000
252,635 230,516 210,332 191,916

year 7 year 8 year 9 year 10

4,262,500 4,262,500 4,262,500 4,262,500

1,162,500 1,162,500 1,162,500 1,162,500
200,000 200,000 200,000 200,000
252,635 230,516 210,332 191,916
2,647,365 2,669,484 2,689,668 2,708,084
582420 587287 591727 595778
2064944 2082198 2097941 2112305
252635 230516 210332 191916
2317580 2312713 2308273 2304222
2000000
2,317,580 2,312,713 2,308,273 4,304,222
=====================================================================
============================
Scenario Summary
Current Values: NORMAL CASE BEST
Changing Cells:
$S$8 2.75 3.5 4
$S$9 1,550,000 1,200,000 1,500,000
$S$10 0.75 1.5 1.25
$S$11 200,000 1,200,000 1,100,000
Result Cells:
$D$63 10,104,415.19 1,956,719.21 10,703,510.49
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in grey.
 WORST

3
900,000
1.75
1,400,000

(5,112,605.24)