The finance director of Company I has produced a Net Present value calculation for a proposed...
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The finance director of Company I has produced a Net Present value calculation for a proposed investment opportunity. However, the finance director is concerned that some of the estimates in the calculation may be inaccurate. Part (a) Please calculate the sensitivity of the Net Present Value calculation to changes in the following: • Selling price per unit Cost of materials • Labour & overheads Part (b) Please complete the table which shows the sensitivity of each of the variables above and rank them (most sensitive = 1, least sensitive =3). Please ensure that you use formula wherever appropriate, so that the answers automatically update if any of the information changes Company I Investment opportunity: Net Present Value calculation Revenue Cost of materials Packaging costs Labour & overheads Net trading cash flows Corporation tax Equipment Disposal proceeds Capital allow ances Net cash flows Cost of capital Net present value Corporation tax rate Year 0 £ -1,000,000 -1,000,000 8.0% 147,516 25.0% Year 1 £ Year 2 £ 2,500,000 2,600,000 -450,000 -550,000 -850,000 -915,000 -675,000 -700,000 525,000 435,000 Year 3 £ 2,700,000 -650,000 -965,000 -725,000 360,000 -131,250 -108,750 125,000 45,000 36,900 525,000 348,750 413,150 Year 4 £ -90,000 136,850 46,850 Part (a) Please calculate the sensitivity of the NPV calculation to changes in the following variables: Selling price Cash flows affected (before tax) Corporation tax Net cash flows Cost of capital Present value of cash flows affected Original NPV Sensitivity Cost of materials Cash flows affected (before tax) Corporation tax Net cash flows Cost of capital Present value of cash flows affected Original NPV Sensitivity Labour & overheads Cash flows affected (before tax) Corporation tax Net cash flows Cost of capital Present value of cash flows affected Original NPV Sensitivity Year 0 £ Selling price Cost of materials Labour & overheads Year 0 Year 0 Year 1 £ Year 1 £ Year 1 £ Year 2 £ Year 2 £ Year 2 £ Year 3 £ Year 3 £ Year 3 £ Year 4 £ Year 4 £ Year 4 £ Part (b) Please complete the table below and rank the variable (most sensitive = 1, least sensitive =3) Sensitivity Banking The finance director of Company I has produced a Net Present value calculation for a proposed investment opportunity. However, the finance director is concerned that some of the estimates in the calculation may be inaccurate. Part (a) Please calculate the sensitivity of the Net Present Value calculation to changes in the following: • Selling price per unit Cost of materials • Labour & overheads Part (b) Please complete the table which shows the sensitivity of each of the variables above and rank them (most sensitive = 1, least sensitive =3). Please ensure that you use formula wherever appropriate, so that the answers automatically update if any of the information changes Company I Investment opportunity: Net Present Value calculation Revenue Cost of materials Packaging costs Labour & overheads Net trading cash flows Corporation tax Equipment Disposal proceeds Capital allow ances Net cash flows Cost of capital Net present value Corporation tax rate Year 0 £ -1,000,000 -1,000,000 8.0% 147,516 25.0% Year 1 £ Year 2 £ 2,500,000 2,600,000 -450,000 -550,000 -850,000 -915,000 -675,000 -700,000 525,000 435,000 Year 3 £ 2,700,000 -650,000 -965,000 -725,000 360,000 -131,250 -108,750 125,000 45,000 36,900 525,000 348,750 413,150 Year 4 £ -90,000 136,850 46,850 Part (a) Please calculate the sensitivity of the NPV calculation to changes in the following variables: Selling price Cash flows affected (before tax) Corporation tax Net cash flows Cost of capital Present value of cash flows affected Original NPV Sensitivity Cost of materials Cash flows affected (before tax) Corporation tax Net cash flows Cost of capital Present value of cash flows affected Original NPV Sensitivity Labour & overheads Cash flows affected (before tax) Corporation tax Net cash flows Cost of capital Present value of cash flows affected Original NPV Sensitivity Year 0 £ Selling price Cost of materials Labour & overheads Year 0 Year 0 Year 1 £ Year 1 £ Year 1 £ Year 2 £ Year 2 £ Year 2 £ Year 3 £ Year 3 £ Year 3 £ Year 4 £ Year 4 £ Year 4 £ Part (b) Please complete the table below and rank the variable (most sensitive = 1, least sensitive =3) Sensitivity Banking
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Step13 Net prewsent value calculation SNo Particulars Year 1 Year 2 Year 3 Year 4 1 Revenue 2500000 2600000 2700000 2 Cost of Material 450000 550000 650000 3 Packaging Cost 850000 915000 965000 4 Labo... View the full answer
Related Book For
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott
Posted Date:
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