Question: 11. What will be below project NPV if the sales drops 30%? Make a Sensitivity analysis. Project life is 3 years with 100% Depreciation bonus.
11. What will be below project NPV if the sales drops 30%? Make a Sensitivity analysis. Project life is 3 years with 100% Depreciation bonus.
| WACC | 10.0% |
| Equipment cost | $75,000 |
| Required net operating working capital (NOWC) | $15,000 |
| Annual sales revenues | $73,000 |
| Annual operating costs | $25,000 |
| Tax rate | 25.0% |
| Equip Cost (1 T) | WACC =10.0% | -$56,250 | |||
| Investment in NOWC | -$15,000 | ||||
| Sales revenues | $73,000 | $73,000 | $73,000 | ||
| Operating costs | 25,000 | 25,000 | 25,000 | ||
| Operating income (EBIT) | $48,000 | $48,000 | $48,000 | ||
| Taxes | rate =25.0% | 12,000 | 12,000 | 12,000 | |
| EBIT(1 T) | $36,000 | $36,000 | $36,000 | ||
| Recovery of NOWC | 15,000 | ||||
| Project CFs | -$71,250 | $36,000 | $36,000 | $51,000 |
What is the NPV of this project?
What is the NPV with 30% drop in sales?
12) Calculate below project Expected NPV. What is the project Standard Deviation? What is the project Coefficient of Variance.? (Scenario Analysis)
| Probability | Predicted cash flow for each year | WACC | NPV | ||||
| 0 | 1 | 2 | 3 | 4 | |||
| 25% | -$750 | $3300 | $3131 | $2920 | $2637 | 7.5% | |
| 50% | -$1000 | $500 | $400 | $300 | $100 | 10% | |
| 25% | -$1250 | $-$1530 | -$1579 | -$1602 | -$1708 | 12.5% | |
| Expected NPV | |||||||
| Standard Deviation | |||||||
| Coefficient of Variation (CV): Std Dev /Expected NPV | |||||||
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