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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