Assignment Capital Budgeting Solutions

Added on - 01 Apr 2020

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Part A – Solutionsa)Base ScenarioYearYearYearYearYearYearYearYearYearPeriods012345678Cash inflows1,445,0001,589,5001,748,4501,923,2952,115,6252,327,1872,559,9062,815,896Plus cost of savings00000000Less costs1,181,0001,251,8601,326,9721,406,5901,490,9851,580,4441,675,2711,775,787Less Depreciation Exp206,250206,250206,250206,250206,250206,250206,250206,250Net Income beforetax57,750131,390215,228310,455418,389540,493678,385833,859Less Income Tax17,32539,41764,56993,137125,517162,148203,515250,158Net Income after Tax40,42591,973150,660217,319292,872378,345474,869583,701Add Depreciation206,250206,250206,250206,250206,250206,250206,250206,250After Tax Cash Flow246,675298,223356,910423,569499,122584,595681,119789,951Initial project cost(1,650,000)After Tax TerminalCash inflow70,000After Tax Cas Flow(1,650,000)246,675298,223356,910423,569499,122584,595681,119859,951PBP4.65Discounted PBP7.13NPV227,758Profitability Index1.13803b)Worst ScenarioYearYearYearYearYearYearYearYearYear
Periods012345678Cash inflows1,445,0001,531,7001,623,6021,721,0181,824,2791,933,7362,049,7602,172,746Plus cost of savings00000000Less costs1,181,0001,299,1001,429,0101,571,9111,729,1021,902,0122,092,2142,301,435Less Depreciation Exp206,250206,250206,250206,250206,250206,250206,250206,250Net Income beforetax57,75026,350(11,658)(57,143)(111,073)(174,526)(248,703)(334,939)Less Income Tax17,3257,905(3,497)(17,143)(33,322)(52,358)(74,611)(100,482)Net Income after Tax40,42518,445(8,161)(40,000)(77,751)(122,168)(174,092)(234,457)Add Depreciation206,250206,250206,250206,250206,250206,250206,250206,250After Tax Cash Flow246,675224,695198,089166,250128,49984,08232,158(28,207)Initial project cost(1,650,000)After Tax Terminal Cash inflow70,000After Tax Cas Flow(1,650,000)246,675224,695198,089166,250128,49984,08232,15841,793Cumulative CF(1,650,000)246,675471,370669,459835,709964,2081,048,2901,080,4481,122,240PBPAfter 8 yearsDiscounted PBPAfter 8 yearsNPV(931,822)Profitability Index0.43526c)Best scenarioYearYearYearYearYearYearYearYearYearPeriods012345678Cash inflows1,445,001,661,751,911,0132,197,662,527,3142,906,4113,342,3733,843,729
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