B C D F J 1 2 E Units Unit Costs Selling Price 1 3 48000 0.94 1.77 2009 84,960.00 $ G H K L M N 0 52000 56000 60000 64000 68000 68000 68000 68000 68000 0.95 0.96 0.97 0.98 0.99 1.01 1.02 1.03 1.81 1.84 1.88 1.92 1.95 1.99 2.03 2.07 2.12 2010 2011 2012 2013 2014 2015 2016 2017 2018 94,120.00 $ 103,040.00 $ 112,800.00 $ 122,880.00 $ 132,600.00 $ 135,320.00 $ 138,040.00 $ 140,760.00 $ 144,160.00 New Project 4 5 Exhibit 5 Exhibit 5 Revenue $ 57,817.0 7.75% 6 7 Cost to Expand 8 Interest Exp 9 10 Depreciation 11 12 Tax Rate 13 Production Expenses 1% Raw Materials 3.00% Manufacturing Overhead 3% Maintenance Expense $ $ $ 45,120.00 $ 3,600.00 $ 2,250.00 $ 49,400.00 $ 3,708.00 $ 2,317.50 $ 53,760.00 $ 3,819.24 $ 2,387.03 $ 58,200.00 $ 3,933.82 $ 2,458.64 $ 62,720.00 S 4,051.83 $ 2,532.39 $ 67,320.00 $ 4,173.39 $ 2,608.37 $ 68,000.00 $ 4,298.59 $ 2,686.62 $ 68,680.00 $ 4,427.55 $ 2,767.22 $ 69,360.00 $ 4,560.37 S 2,850.23 $ 70,040.00 4,697.18 2,935.74 4,000 40% Exhibit 5 Labor Expense $ 18,640.00 $ 20,233.30 $ 22,842.40 $ 25,254.60 $ 28,174.80 $ 30,888.50 $ 31,969.60 $ 33,088.50 $ 34,246.60 $ 35,445.20 14 7.75% 7.80% Selling General and Admin Total Operating Expense EBITDA $ $ $ 6,626.88 $ 76,236.88 $ 8,723.12 $ 15 NPV Discount 16 17 18 7,341.36 $ 83,000.16 $ 11,119.84 $ 8,037.12 $ 90,845.79 $ 12,194.22 $ 8,798.40 $ 9,584.64 $ 10,342.80 $ 10,554.96 $ 10,767.12 S 10,979.28 $ 11,244.48 98,645.45 $ 107,063.67 $ 115,333.05 $ 117,509.77 $ 119,730.38 $ 121,996.48 $ 124,362.60 14,154.55 $ 15,816.33 $ 17,266.95 $ 17,810.23 $ 18,309.62 $ 18,763.52 $ 19,797.40 Flat Depreciation EBIT $ $ 4,000.00 $ 4,723.12 $ 4,000.00 $ 7,119.84 $ 4,000.00 $ 8,194.22 $ 4,000.00 $ 10,154.55 $ 4,000.00 $ 11,816.33 $ 4,000.00 $ 13,266.95 $ 4,000.00 $ 13,810.23 $ 4,000.00 $ 14,309.62 $ 4,000.00 $ 14,763.52 $ 4,000.00 15,797.40 19 20 21 Flat Interest Expense EBT $ S 4,480.82 $ 242.30 $ 4,480.82 $ 2,639.02 $ 4,480.82 $ 3,713.40 $ 4,480.82 $ 5,673.73 $ 4,480.82 $ 7,335.51 $ 4,480.82 $ 8,786.13 $ 4,480.82 $ 9,329.41 $ 4,480.82 $ 9,828.80 $ 4,480.82 $ 10,282.70 $ 4,480.82 11,316.58 22 23 24 25 Calc Taxes Net Profit $ S 96.92 $ 145.38 $ 1,055.61 $ 1,583.41 S 1,485.36 $ 2,228.04 $ 2,269.49 $ 3,404.24 $ 2,934.21 $ 4,401.31 $ 3,514.45 $ 5,271.68 $ 3,731.77 $ 5,597.65 $ 3,931.52 $ 5,897.28 $ 4,113.08 S 6,169.62 $ 4,526.63 6,789.95 26 Flat Add Depreciation Total Cash Flo $ -57,817.0 $ 4,000.00 $ 4,145.38 $ 4,000.00 $ 5,583.41 $ 4,000.00 $ 6,228.04 $ 4,000.00 $ 7,404.24 $ 4,000.00 $ 8,401.31 $ 4,000.00 $ 9,271.68 $ 4,000.00 $ 9,597.65 $ 4,000.00 $ 9,897.28 $ 4,000.00 $ 10,169.62 $ 4,000.00 10,789.95 27 28 29 30 31 32 NPV IRR 33 34 35 36 Q5: Just as Tucker was about to make a decision, the employees heard rumors of the expansion and immediately demanded that their contract be re-negotiated. The employees backed up their threats with work stoppages and demanded a 15% increase in wages. Calculate the impact of a 15% increase in labor. How does a 15% increase in labor expense change the viability of the project? How would you approach this situation from a financial and business perspective? 37 38 Answer: 39 40 Base Scenario Q.1 | Q.2 Q.3 Q.4 Q. 5 Q. 6 +