Question: Based on the first scenario using the case data, what must the Year 1 monthly sales be for the project to have an NPV of

Based on the first scenario using the case data, what must the Year 1 monthly sales be for the project to have an NPV of zero?

Kola Kola - The Valuation of the Zero-Calorie Soda Project

NPV (pesos) ($1,716,060.82)
IRR 16.86%

Payback Period (Years)

3.41

Discounted Payback Period (Years)

Never Gets Paid Back

Question 2 from Scenario 1 Data Set

Profitability Index

0.97
Monthly Sales (units) 600,000 Cost of New Equipment (pesos) 50,000,000
Increase (Decrease) in Sales Volume 0% Resale Value of Equipment (pesos) 4,000,000
Unit Sale Price (pesos) 5

% Overhead to Sales

1%
Increase (Decrease) in Sales Price 0%

Building Rental (pesos)

60,000
Unit Raw Material Cost (pesos) 1.8

Average Collection Period (Days)

45
Increase (Decrease) in Raw Material Costs 0%

Average Payment Period (Days)

36
Monthly Labor Costs (pesos) 180,000

Years of Straight-line Depreciation

5
Increase (Decrease) in Direct Labor Costs 0% Cost of Capital 18.2%
Monthly Energy Costs (pesos) 50,000 Tax Rate 30%
Increase (Decrease) in Energy Costs 0% Erosion (pesos) 800,000
Year 0 1 2 3 4 5
Cost of New Equipment (pesos) (50,000,000)
Resale Value of Equipment (pesos) 4,000,000
Less Taxes (1,200,000)
Net Resale Value of Equipment (pesos) 2,800,000
Working Capital Requirements (pesos)
Receivables ((Sales/365)*Avg Collection Period) 4,438,356 4,438,356 4,438,356 4,438,356 4,438,356
Inventories (One month materials costs) 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
Payables ((Material Costs/365)*Avg Pmt Period) (1,278,247) (1,278,247) (1,278,247) (1,278,247) (1,278,247)
Total Working Capital Requirements (pesos) 4,240,110 4,240,110 4,240,110 4,240,110 4,240,110 -
Change in Working Capital Requirements (pesos) (4,240,110) - - - - 4,240,110
Annual Sales (Units) 7,200,000 7,200,000 7,200,000 7,200,000 7,200,000
Annual Sales Revenue (pesos) 36,000,000 36,000,000 36,000,000 36,000,000 36,000,000
Operating Expenses (pesos)
Raw Material Costs (12,960,000) (12,960,000) (12,960,000) (12,960,000) (12,960,000)
Direct Labor Costs (2,160,000) (2,160,000) (2,160,000) (2,160,000) (2,160,000)
Energy Costs (600,000) (600,000) (600,000) (600,000) (600,000)
Building Rental (Opportunity Costs) (60,000) (60,000) (60,000) (60,000) (60,000)
Depreciation (10,000,000) (10,000,000) (10,000,000) (10,000,000) (10,000,000)
General Administrative and Selling Expenses (300,000) (300,000) (300,000) (300,000) (300,000)
Overhead Expenses (360,000) (360,000) (360,000) (360,000) (360,000)
Total Operating Expenses (pesos) (26,440,000) (26,440,000) (26,440,000) (26,440,000) (26,440,000)
Operating Profit Before Tax (pesos) 9,560,000 9,560,000 9,560,000 9,560,000 9,560,000
Taxes (pesos) (2,868,000) (2,868,000) (2,868,000) (2,868,000) (2,868,000)
Operating Profit After Tax (pesos) 6,692,000 6,692,000 6,692,000 6,692,000 6,692,000
Project's Operating Cash Flow (pesos)
Depreciation (pesos) 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
Erosion of Existing Sales (pesos) (800,000) (800,000) (800,000) (800,000) (800,000)
Total Operating Cash Flow (pesos) 15,892,000 15,892,000 15,892,000 15,892,000 15,892,000
Project's Free Cash Flow (pesos) (54,240,110) 15,892,000 15,892,000 15,892,000 15,892,000 22,932,110
Cumulative FCF (pesos) (54,240,110) (38,348,110) (22,456,110) (6,564,110) 9,327,890 32,260,000
Present Value of Cash Flow (pesos) (54,240,110) 13,445,008 11,374,796 9,623,347 8,141,579 9,939,319
Cumulative PV of CF (pesos) (54,240,110) (40,795,101) (29,420,305) (19,796,959) (11,655,380) (1,716,061)

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