Given the following additional information, compute the Net Present Value (NPV) for the best-case and worst-case scenarios,
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Question:
- Given the following additional information, compute the Net Present Value (NPV) for the best-case and worst-case scenarios, including the WDA. Working capital equal to 8% of annual revenue of the year must be available at the start of the year concerned. All working capital will be released on 31 December 20X7.
| 20X4 | 20X5 | 20X6 | 20X7 |
Real Discount Rate | 5% | 6% | 7% | 7% |
Inflation | 2% | 2% | 2% | 2% |
Taxation | 17% | 17% | 17% | 17% |
Corporate tax payments occur at the end of the accounting year to which they relate. All cash flows are deemed to occur at end of relevant year unless otherwise stated. Annual revenue and variable costs are not correlated.
- The best-case scenario for the project is £2 million of annual revenues and variable costs of 25% of annual revenue and annual fixed costs will be £0.35 million (at 31 December 20X3 prices).
(9 marks)
- The worst-case scenario for the project is £1.2 million of annual revenues and variable costs of 30%of annual revenue and annual fixed costs will be £0.35 million (at 31 December 20X3 prices).
Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
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