Corporate Finance: NPV Calculation and Cash Flow Analysis

This article discusses corporate finance with a focus on cash flow analysis and NPV calculation. It includes solved assignments, essays, and dissertations on the topic. The content covers initial outlay, cash flows over the life of a project, and cash flows at the end of a project. The subject is relevant to finance courses and includes course codes and college/university names where applicable.

Running head: CORPORATE FINANCE
Corporate Finance
Name of Student:
Name of University:
Author’s Note:

1CORPORATE FINANCE
Table of Contents
1. Cash Flows at the Start................................................................................................................2
2. Cash Flows Over the Life............................................................................................................0
3.Cash Flows at the End..................................................................................................................0
4. The NPV of Reef Magic 4...........................................................................................................4

2CORPORATE FINANCE
1. Cash Flows at the Start
Particulars Year 0 Year 1
Initial Outlay -2603000
Borrowings 2000000.00
Annual Demand of Passengers (in
Units) 28000
Inventory 700000
Accounts Receivable 3600000
Upgrade Contribution 2000000
Price per Vessel 1400
Net Revenue 39200000
Total Income 47500000.00
Accounts Payable 1880000
Additional Personnel Hire Cost 7400
Fixed Operating Cost 14500000
Operating Expense 370000
Annual Wages Expenses 7800000
Wages Associated to Purchase 1450000
Fuel Expense 1100000
Placement Fee 8000
Maintenance 0
Purchase of New Vessel 340000
Interest on loan 140000
Depreciation Expenses 8000000
Total Expenses 35595400
Net Operating Profit before Tax 11904600
Less: Tax @30% -3571380
Net Operating Profit after Tax 8333220
Add: Depreciation Expenses -8000000
Net Operating Cash Flow 0 333220
Recovery of Working Capital
Total Net Cash Flow -2603000 333220

3CORPORATE FINANCE
Statement for Calculation of Initial Outlay
New Project
Particulars Amount Amount
Report Cost 175000
Leasing Cost 115000
Private Placement cost 8000
Marketing expenses for
certificates 2130000
Tourism Expenses 175000
Total Initial Investment 2603000

0CORPORATE FINANCE
2. Cash Flows Over the Life

1CORPORATE FINANCE
Calculation of NPV, Profitability Index of Reef Magic 4:-
Amount (in RM)
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Initial Outlay -2603000
Borrowings 2000000.00 2000000.00 ######### 2000000.00 2000000.00 2000000.00 2000000.00 2000000.00 2000000.00 2000000.00
Annual Demand of
Passengers (in Units) 28000 28420 28846.3 29278.995 29718.179 30163.95211 30616.41139 31075.65756 31541.79242 32014.91931
Inventory 700000 700000 700000 700000 700000 700000 700000 700000 700000 700000
Accounts Receivable 3600000 3600000 3600000 3600000 3600000 3600000 3600000 3600000 3600000 3600000
Upgrage Contribution 2000000 2000000 2000000 2000000 2000000 2000000 2000000 2000000 2000000 2000000
Price per Vessel 1400 1400 1400 1400 1400 1400 1400 1400 1400 1400
Net Revenue 39200000 39788000 40384820 40990592 41605451 42229533 42862976 43505921 44158509 44820887
Total Income 47500000.00
48088000.0
0 ######### ######### ######### 50529532.95
51162975.9
5 51805920.59
52458509.3
9 53120887.04
Accounts Payable 1880000 1880000 1880000 1880000 1880000 1880000 1880000 1880000 1880000 1880000
Additional Personnel
Hire Cost 7400 7548 7698.96 7852.9392 8009.998 8170.197944 8333.601903 8500.273941 8670.279419 8843.685008
Fixed Operating Cost 14500000 17300000 17300000 17300000 17300000 17300000 17300000 17300000 17300000 17300000
Operating Expense 370000 377400 384948 392646.96 400499.9 408509.8972 416680.0951 425013.697 433513.971 442184.2504
Annual Wages
Expenses 7800000 7800000 7800000 7800000 7800000 7800000 7800000 7800000 7800000 7800000
Wages Associated to
Purchase 1450000 1450000 1450000 1450000 1450000 1450000 1450000 1450000 1450000 1450000
Fuel Expense 1100000 1067000 1034990 1003940.3 973822.09 944607.4283 916269.2054 888781.1293 862117.6954 836254.1645
Placement Fee 8000 8000 8000 8000 8000 8000 8000 8000 8000 8000
Maintainence 0 0 0 870000 870000 870000 870000 870000 870000 870000
Purchase of New
Vessel 340000 340000 340000 340000 340000 340000 340000 340000 340000 340000
Interest on loan 140000 140000 140000 140000 140000 140000 140000 140000 140000 140000

2CORPORATE FINANCE
Depreciation Expenses 8000000 8000000 8000000 8000000 8000000 8000000 8000000 8000000 8000000 8000000
Total Expenses 35595400 38369948 38345637 39192440 39170332 39149287.52 39129282.9 39110295.1 39092301.95 39075282.1
Net Operating Profit
before Tax 11904600 9718052 10339183 10098152 10735119 11380245.43
12033693.0
4 12695625.49
13366207.4
5 14045604.94
Less: Tax @30% -3571380 -2915415.6 -3101755 -3029446 -3220536
-
3414073.629
-
3610107.913
-
3808687.646
-
4009862.235 -4213681.48
Net Operating Profit
after Tax 8333220 6802636.4 7237428.1 7068706.5 7514583.4 7966172 8423585 8886938 9356345 9831923
Add: Depreciation
Expenses -8000000 -8000000 -8000000 -8000000 -8000000 -8000000 -8000000 -8000000 -8000000 -8000000
Net Operating Cash
Flow 0 333220 -1197363.6 -762571.9 -931293.5 -485416.6 -33828 423585 886938 1356345 1831923
Recovery of Working
Capital 8000
Total Net Cash Flow -2603000 333220 -1197363.6 -762571.9 -931293.5 -485416.6 -33828 423585 886938 1356345 1839923
Cost of Capital 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00
Required Rate of
Return 0.000 1.000 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270
Discounted Cash Flow 0 933220 -459652 -109731 -196152 59511 257940 409063 521260 601592 658154
Salvage value of new
machine $130,000
Net Present Value 2675204

3CORPORATE FINANCE
Average Accounting
Return 8142154
Accounting Rate of
Return (ARR) 312.80%
Cumulative Cash Flow 0 333220 -864144 -1626715 -2558009 -3043426 -3077254 -2653669 -1766731 -410386 1429538
Payback Period 0.87

0CORPORATE FINANCE
3. Cash Flows at the End
Partic
ulars Year 10
Initial
Outlay
Borro
wings 2000000.00
Annual
Dema
nd of
Passen
gers
(in
Units) 32014.91931
Invent
ory 700000
Accou
nts
Receiv
able 3600000
Upgra
ge
Contri
bution 2000000
Price
per
Vessel 1400
Net
Reven
ue 44820887

1CORPORATE FINANCE
Total
Incom
e 53120887.04
Accou
nts
Payabl
e 1880000
Additi
onal
Person
nel
Hire
Cost 8843.685008
Fixed
Opera
ting
Cost 17300000
Opera
ting
Expens
e 442184.2504
Annual
Wages
Expens
es 7800000
Wages
Associ
ated
to
Purcha
se 1450000
Fuel
Expens
e
1100
000
1067
000
1034
990
1003
940.
3
9738
22.0
9
94460
7.4283
91626
9.2054
88878
1.1293
86211
7.6954
83625
4.164
5
Place
ment
Fee 8000 8000 8000 8000 8000 8000 8000 8000 8000 8000
Maint
ainenc
e 0 0 0
8700
00
8700
00
87000
0
87000
0
87000
0
87000
0
87000
0
Purcha
se of
New
Vessel
3400
00
3400
00
3400
00
3400
00
3400
00
34000
0
34000
0
34000
0
34000
0
34000
0
Interes
t on
loan
1400
00
1400
00
1400
00
1400
00
1400
00
14000
0
14000
0
14000
0
14000
0
14000
0

2CORPORATE FINANCE
Depre
ciation
Expens
es
8000
000
8000
000
8000
000
8000
000
8000
000
80000
00
80000
00
80000
00
80000
00
80000
00
Total
Expens
es
3559
5400
3836
9948
3834
5637
3919
2440
3917
0332
39149
287.52
39129
282.9
39110
295.1
39092
301.95
39075
282.1
Net
Opera
ting
Profit
before
Tax
1190
4600
9718
052
1033
9183
1009
8152
1073
5119
11380
245.43
12033
693.04
12695
625.49
13366
207.45
14045
604.9
4
Less:
Tax
@30%
-
3571
380
-
2915
415.6
-
3101
755
-
3029
446
-
3220
536
-
34140
73.629
-
36101
07.913
-
38086
87.646
-
40098
62.235
-
42136
81.48
Net
Opera
ting
Profit
after
Tax
8333
220
6802
636.4
7237
428.
1
7068
706.
5
7514
583.
4
79661
72
84235
85
88869
38
93563
45
98319
23
Add:
Depre
ciation
Expens
es
-
8000
000
-
8000
000
-
8000
000
-
8000
000
-
8000
000
-
80000
00
-
80000
00
-
80000
00
-
80000
00
-
80000
00
Net
Opera
ting
Cash
Flow 0
3332
20
-
1197
363.6
-
7625
71.9
-
9312
93.5
-
4854
16.6 -33828
42358
5
88693
8
13563
45
18319
23
Recov
ery of
Worki
ng
Capita
l 8000
Total
Net
Cash
-
2603
000
3332
20
-
1197
363.6
-
7625
71.9
-
9312
93.5
-
4854
16.6
-33828 42358
5
88693
8
13563
45
18399
23

3CORPORATE FINANCE
Flow
Cost of
Capital
6000
00.0
0
6000
00.0
0
6000
00.00
6000
00.0
0
6000
00.0
0
6000
00.0
0
60000
0.00
60000
0.00
60000
0.00
60000
0.00
60000
0.00
Requir
ed
Rate
of
Return
0.00
0
1.00
0 0.769
0.67
5
0.59
2
0.51
9 0.456 0.400 0.351 0.308 0.270
Discou
nted
Cash
Flow 0
9332
20
-
4596
52
-
1097
31
-
1961
52
5951
1
25794
0
40906
3
52126
0
60159
2
65815
4
Salvag
e
value
of new
machi
ne
$130,
000
Net
Presen
t
Value 2675204
Avera
ge
Accou
nting
Return 8142154
Accou
nting
Rate
of
Return
(ARR) 312.80%
Cumul
ative
Cash
Flow 0
3332
20
-
8641
44
-
1626
715
-
2558
009
-
3043
426
-
30772
54
-
26536
69
-
17667
31
-
41038
6
14295
38

4CORPORATE FINANCE
Payba
ck
Period 0.87
4. The NPV of Reef Magic 4
Based on all the depictions it can be clearly seen that the NPV of the project over a time
span of 10 years will be $ 2675204. Therefore, it is feasible to proceed with the project.