Spreadsheet 10.1:

Problem 10-6 Sensitivity Analysis (L03) Blooper's analysts have come up with the following revised estimates for its magnoosium mine: Initial investment Revenues Variable costs Fixed cost Working capital Range Pessimistic Optimistic + 40% 20% 20% + 25% + 20% 15% + 50% 50% + 35% 35% Conduct a sensitivity analysis for each variable and range and compute the NPV for each. Use Spreadsheet 10.1 and accompanying data as a starting point for the analysis. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Enter your answers in thousands rounded to the nearest whole dollar.) Project NPV Expected Pessimistic Optimistic Initial investment Revenues Variable costs Fixed costs Working capital C D E F G H J 1 2 3 4 5 Name Box A. Inputs Initial investment ($ thousands) Salvage value ($ thousands) Initial revenues ($ thousands) Variable costs (% of revenues) Initial fixed costs ($ thousands) Inflation rate (%) Discount rate (%) Receivables (% of sales) Inventory % of next year's costs) Tax rate (%) 6 10,000 2,000 15,000 40.0% 4,000 5.0% 12.0% 16.7% 15.0% 21.0% Year: 0 1 2 3 4 5 6 10,000 B. Fixed assets Investments in fixed assets Sales of fixed assets Cash flow from fixed assets 1,580 1,580 -10,000 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 C. Operating cash flow Revenues Variable expenses Fixed expenses Depreciation Pretax profit Profit after tax Operating cash flow 15,000 6,000 4,000 2,000 3,000 630 2,370 4,370 15,750 6,300 4,200 2,000 3,250 683 2,568 4,568 16,538 6,615 4,410 2,000 3,513 738 2,775 4,775 17,364 6,946 4,631 2,000 3,788 796 2,993 4,993 18,233 7,293 4,862 2,000 4,078 856 3,221 5,221 4,493 D. Working capital Working capital Change in working capital Cash flow from investment in working capital 1,500 1,500 4,279 204 4,717 225 214 4,075 2,575 -2,575 0.408 3,039 -1,679 1,679 0.250 0 -3,039 3,039 -1,500 -204 -214 -225 0.408 0.408 0.408 E. Project valuation Total project cash flow Discount factor PV of cash flow Net present value 1,795 0.893 -11,500 1.000 -11,500 6,113.1 4,364 0.797 3,479 4,561 0.712 3,246 4,768 0.636 3,030 6,900 0.567 3,915 4,619 0.507 2,340 1,603 38 Problem 10-6 Sensitivity Analysis (L03) Blooper's analysts have come up with the following revised estimates for its magnoosium mine: Initial investment Revenues Variable costs Fixed cost Working capital Range Pessimistic Optimistic + 40% 20% 20% + 25% + 20% 15% + 50% 50% + 35% 35% Conduct a sensitivity analysis for each variable and range and compute the NPV for each. Use Spreadsheet 10.1 and accompanying data as a starting point for the analysis. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Enter your answers in thousands rounded to the nearest whole dollar.) Project NPV Expected Pessimistic Optimistic Initial investment Revenues Variable costs Fixed costs Working capital C D E F G H J 1 2 3 4 5 Name Box A. Inputs Initial investment ($ thousands) Salvage value ($ thousands) Initial revenues ($ thousands) Variable costs (% of revenues) Initial fixed costs ($ thousands) Inflation rate (%) Discount rate (%) Receivables (% of sales) Inventory % of next year's costs) Tax rate (%) 6 10,000 2,000 15,000 40.0% 4,000 5.0% 12.0% 16.7% 15.0% 21.0% Year: 0 1 2 3 4 5 6 10,000 B. Fixed assets Investments in fixed assets Sales of fixed assets Cash flow from fixed assets 1,580 1,580 -10,000 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 C. Operating cash flow Revenues Variable expenses Fixed expenses Depreciation Pretax profit Profit after tax Operating cash flow 15,000 6,000 4,000 2,000 3,000 630 2,370 4,370 15,750 6,300 4,200 2,000 3,250 683 2,568 4,568 16,538 6,615 4,410 2,000 3,513 738 2,775 4,775 17,364 6,946 4,631 2,000 3,788 796 2,993 4,993 18,233 7,293 4,862 2,000 4,078 856 3,221 5,221 4,493 D. Working capital Working capital Change in working capital Cash flow from investment in working capital 1,500 1,500 4,279 204 4,717 225 214 4,075 2,575 -2,575 0.408 3,039 -1,679 1,679 0.250 0 -3,039 3,039 -1,500 -204 -214 -225 0.408 0.408 0.408 E. Project valuation Total project cash flow Discount factor PV of cash flow Net present value 1,795 0.893 -11,500 1.000 -11,500 6,113.1 4,364 0.797 3,479 4,561 0.712 3,246 4,768 0.636 3,030 6,900 0.567 3,915 4,619 0.507 2,340 1,603 38