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    Budgeting Solutions

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    Pavan Kalyan Kola
    The NPV of projected cash flow is greater than the current value, so the company should continue its operations. The NPV of projected cash flow is positive, so I recommend approval of the program to increase sales. The projected cash flow NPV is negative in all cases, so the proposal will be rejected.

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    Budgeting Solutions

    Uploaded by

    Pavan Kalyan Kola
    43 views9 pages
    The NPV of projected cash flow is greater than the current value, so the company should continue its operations. The NPV of projected cash flow is positive, so I recommend approval of the program to increase sales. The projected cash flow NPV is negative in all cases, so the proposal will be rejected.

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    Capital Budgeting solutions

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    The NPV of projected cash flow is greater than the current value, so the company should continue its operations. The NPV of projected cash flow is positive, so I recommend approval of the program to increase sales. The projected cash flow NPV is negative in all cases, so the proposal will be rejected.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    43 views9 pages

    Budgeting Solutions

    Uploaded by

    Pavan Kalyan Kola
    The NPV of projected cash flow is greater than the current value, so the company should continue its operations. The NPV of projected cash flow is positive, so I recommend approval of the program to increase sales. The projected cash flow NPV is negative in all cases, so the proposal will be rejected.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 9

    CAPITAL BUDGETING - PROBLEM 3,4,5

    Year 1998 1999


    Quantity 1000000 1000000
    Price/unit 20 20.6
    Gross Revenue 20000000 20600000
    Less: Cash Cost of goods 10000000 10300000
    Less: Depreciation 1057000 1124000
    Gross Profit 8943000 9176000
    Less: SG&A 7000000 7210000
    EBIT 1943000 1966000
    Less: Taxes @40% 777200 786400
    EBIAT 1165800 1179600
    Add: Depreciation 1057000 1124000
    Operating Cash Flow 2222800 2303600
    Less: CAPEX 400000 400000
    Less :Incremental Net Working Capital 108000 111000
    Free Cash Flow 1714800 1792600

    Net Present Value - 1997 $8,846,234.87


    The NPV of projected cash flow is G
    Recovery of Working Capital 3592000 continue with its operations
    Sale of fixed Assets 3000000
    Tax saving on loss 1600000
    Current Value - 1997 $8,192,000.00
    2000 2001 2002 2003 2004
    1000000 1000000 1000000 1000000 1000000
    21 21.15 21.25 21.25 21
    21000000 21150000 21250000 21250000 21000000
    10609000 10927270 11255088.1 11592740.743 11940522.9653
    1204000 1304000 1404000 1504000 1504000
    9187000 8918730 8590911.9 8153259.257 7555477.03471
    7426300 7649089 7878561.67 8114918.5201 8358366.0757
    1760700 1269641 712350 38340.7369 -802889.04099
    704280 507856.4 284940.092 15336.29476 -321155.6164
    1056420 761784.6 427410.138 23004.44214 -481733.4246
    1204000 1304000 1404000 1504000 1504000
    2260420 2065784.6 1831410.138 1527004.44214 1022266.5754
    400000 400000 300000 200000 0
    79000 40000 33000 17000 -23000
    1781420 1625784.6 1498410.138 1310004.44214 1045266.5754

    he NPV of projected cash flow is Greater than the Current Value. So, the compant should
    ontinue with its operations
    2005
    0
    19
    0
    0

    0
    0
    0
    0
    0

    0
    0
    -3957000
    3957000
    Time period 1998 Beginning 1998 1999 2000
    Quantity 250000 250000 250000
    Selling price 20.00 20.60 21.00
    Net sales 5,000,000.00 5,150,000.00 5,250,000.00
    COGS 2,500,000.00 2,575,000.00 2,652,250.00
    Gross Profit 2,500,000.00 2,575,000.00 2,597,750.00
    SG&A 1,250,000.00 1,287,500.00 1,326,125.00
    Promotional
    Expenditure 1,000,000.00 1,000,000.00 500,000.00
    Operating Profit 250,000.00 287,500.00 771,625.00
    Depreciation 200,000.00 200,000.00 200,000.00
    EBIT 50,000.00 87,500.00 571,625.00
    Tax @ 40% 20,000.00 35,000.00 228,650.00
    EBIAT 30,000.00 52,500.00 342,975.00
    Depreciation 200,000.00 200,000.00 200,000.00
    CAPEX -1,400,000
    Working capital 925,000.00 953,000.00 973,000.00
    Increment/Recovery in
    Working Capital -28,000.00 -20,000.00
    Free Cash flow $ -1,400,000.00 230,000.00 224,500.00 522,975.00

    Intrest Rate 12% Since the Net present value is $1.24 millio
    NPV At 1997 ₹ 1,247,173.46
    2001 2002 2003 2004 2005
    250000 250000 250000 250000 0
    21.15 21.25 21.25 21.00 19.00
    5,287,500.00 5,312,500.00 5,312,500.00 5,250,000.00
    2,731,817.50 2,813,772.03 2,898,185.19 2,985,130.74
    2,555,682.50 2,498,727.98 2,414,314.81 2,264,869.26
    1,365,908.75 1,406,886.01 1,449,092.59 1,492,565.37

    1,189,773.75 1,091,841.96 965,222.22 772,303.89


    200,000.00 200,000.00 200,000.00 200,000.00
    989,773.75 891,841.96 765,222.22 572,303.89
    395,909.50 356,736.79 306,088.89 228,921.56
    593,864.25 535,105.18 459,133.33 343,382.33
    200,000.00 200,000.00 200,000.00 200,000.00

    983,000.00 991,000.00 995,000.00 989,000.00

    -10,000.00 -8,000.00 -4,000.00 6,000.00 989,000.00


    783,864.25 727,105.18 655,133.33 549,382.33 989,000.00

    nt value is $1.24 million and positive , I recommend the approval of program to increase sales.
    Case Year 0 1

    Investment -$350,000,000.00 -$350,000,000.00


    Cost -$80,000,000.00
    1(Best case) Cash flow $98,000,000.00
    Free Cash Flow -$430,000,000.00 -$252,000,000.00
    NPV -$106,421,388.59

    Investment -$350,000,000.00
    Cost -$80,000,000.00
    2(Expected) Cash flow $49,000,000.00
    Free Cash Flow -$430,000,000.00 $49,000,000.00
    NPV -$113,343,437.66

    Investment -350,000,000
    Cost -80,000,000
    3(Most Likely) Cash flow - 32,340,000
    Free Cash Flow -430,000,000 32,340,000
    NPV -$218,342,888.91

    Investment -$350,000,000.00 $170,000,000.00


    Cost -$80,000,000.00
    4(Worst Case ) Cash flow
    Free Cash Flow -$430,000,000.00 $170,000,000.00
    NPV -$279,557,522.12
    2 3 4 5 6

    $98,000,000.00 $98,000,000.00 $98,000,000.00 $98,000,000.00 $98,000,000.00


    $98,000,000.00 $98,000,000.00 $98,000,000.00 $98,000,000.00 $98,000,000.00

    $49,000,000.00 $49,000,000.00 $49,000,000.00 $49,000,000.00 $49,000,000.00


    $49,000,000.00 $49,000,000.00 $49,000,000.00 $49,000,000.00 $49,000,000.00

    32,340,000 32,340,000 32,340,000 32,340,000 32,340,000


    32,340,000 32,340,000 32,340,000 32,340,000 32,340,000

    The Projected Cash Flow Net Present Value is -ve in all cases,
    So, In this Scenario the proposal will be rejected.
    7 8 9 10 11

    $98,000,000.00 $98,000,000.00 $98,000,000.00 $98,000,000.00 $98,000,000.00


    $98,000,000.00 $98,000,000.00 $98,000,000.00 $98,000,000.00 $98,000,000.00

    $49,000,000.00 $49,000,000.00 $49,000,000.00 $49,000,000.00 $49,000,000.00


    $49,000,000.00 $49,000,000.00 $49,000,000.00 $49,000,000.00 $49,000,000.00

    32,340,000 32,340,000 32,340,000 32,340,000 32,340,000


    32,340,000 32,340,000 32,340,000 32,340,000 32,340,000

    all cases,
    12 13 14 15

    $98,000,000.00 $98,000,000.00 $98,000,000.00 $98,000,000.00


    $98,000,000.00 $98,000,000.00 $98,000,000.00 $98,000,000.00

    $49,000,000.00 $49,000,000.00 $49,000,000.00 $49,000,000.00


    $49,000,000.00 $49,000,000.00 $49,000,000.00 $49,000,000.00

    32,340,000 32,340,000 32,340,000 49,000,000


    32,340,000 32,340,000 32,340,000 49,000,000

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