Finance: Net Present Values of the Project

This report calculates net present values of different projects at different years and for different levels of revenues. It also determines the estimate cost of the project given the cost of capital and calculates free cash flows of the project for different periods.

RUNNING HEAD: FINANCE (NET PRESENT VALUES OF THE PROJECT) 1
UNIVERSITY NAME
STUDENT NAME
COURSE
DATE

FINANCE(NET PRESENT VALUES OF THE PROJECT) 2
EXECUTIVE SUMMARY
Purpose of this report is to prepare net present values of different projects at different years and for
different levels of revenues.it also aims at calculating estimate cost of the project given the cost of
capital. This report also finds out what net present values are for the project if revenues fall below those
forecasted and if they are more than the forecast.
Free cash flows of the project are also determined from year 0 all through to year 10. this aims at
determining the cash flows of the project for different periods.

FINANCE(NET PRESENT VALUES OF THE PROJECT) 3
Table of Contents
INTRODUCTION...........................................................................................................................................4
ESTIMATED COST OF THE PROJECT.............................................................................................................4
NET PRESENT VALUES(BASE- CASE SCENARIO)............................................................................................4
NET PRESENT VALUE ( WHEN FORECASTED REVENUE IS HIGHER BY 10%).................................................5
NET PRESENT VALUE ( WHEN FORECASTED REVENUE IS LESS BY 10%).......................................................6
FREE CASH FLOWS FOR YEAR 0-YEAR 10.....................................................................................................7
CONCLUSION...............................................................................................................................................8
REFERENCES................................................................................................................................................9

FINANCE(NET PRESENT VALUES OF THE PROJECT) 4
INTRODUCTION
Calculation of CCA on yearly basis has been determined and the net present values for different years
has been worked on, free cash flows have been also worked on from year 0 to year 10.
Net present values have been also determined for base case,10 % higher and 10 % lower forecasted
revenues which has indicated different results.
1(A)
ESTIMATED COST OF THE PROJECT
CALCULATED AS FOLLOWS {ASSUMING THE COST OF CAPITAL FOR THE PROJECT IS 12%-MISSING IN THE
QUESTION}
-34+6785X1/1.08(1-1/1.089) +15785/1.0810=10417.37
(Babusiaux & Pierru, 2009).
QUESTION 2(PART A)
YEARLY CCA=DEPRECIABLE VAL.X CCA RATE
=143X10%
=$14.30 MILLION
QUESTION 2 (PART B).
NET PRESENT VALUES (BASE- CASE SCENARIO).
YEAR 0 YEAR 1-9 YEAR 10 NET PRESENT VALUE
REVENUES 93.00 93.00
MANUFACTURING
EXPENSES
(33.00) (33.00)
MARKET EXP. (9.00) (9.00)
CCA (14.30) (14.30)
EBIT 36.70 36.70
TAXES(35%) (12.85) (12.85)
NET
INCOME(UNGEARED)
23.85 23.85

FINANCE(NET PRESENT VALUES OF THE PROJECT) 5
+CCA 14.30 14.30
NET WORKING
CAPITAL(INCREASE)
(5.OO) (5.00)
CAPITAL EXP. (143.00)
CONTINUATION
VALUE
11
FCF 143.00 33.15 44.15
ANUITY (12%)
(Wetekamp,(2011)
1.00000 5.32825 0.32197
NPV -143.00 176.63 14.21 $47.84
QUESTION 2(PART C).
NET PRESENT VALUE (WHEN FORECASTED REVENUE IS
HIGHER BY 10%)
YEAR 0 YEAR 1-9 YEAR 10 NET PRESENT VALUE
REVENUES 102.30 102.30
MANUFACTURING
EXPENSES
(33.00) (33.00)
MARKET EXP. (9.00) (9.00)
CCA (14.30) (14.30)
EBIT 46.00 46.00
TAXES(35%) (16.10) (16.10)
NET
INCOME(UNGEARED)
29.90 29.90
+CCA 14.30 14.30

FINANCE(NET PRESENT VALUES OF THE PROJECT) 6
NET WORKING
CAPITAL(INCREASE)
(5.OO) (5.00)
CAPITAL EXP. (143.00)
CONTINUATION
VALUE
11
FCF 143.00 39.20 50.20
ANUITY (12%) 1.00000 5.32825 0.32197
NPV -143.00 208.87 16.16 $82.03
QUESTION 2 (PART D).
NET PRESENT VALUE (WHEN FORECASTED REVENUE IS
LESS BY 10%)
YEAR 0 YEAR 1-9 YEAR 10 NET PRESENT VALUE
REVENUES 83.70 83.70
MANUFACTURING
EXPENSES
(33.00) (33.00)
MARKET EXP. (9.00) (9.00)
CCA (14.30) (14.30)
EBIT 27.40 27.40
TAXES(35%) (9.59) (9.59)
NET
INCOME(UNGEARED)
17.81 17.81
+CCA 14.30 14.30
NET WORKING
CAPITAL(INCREASE)
(5.OO) (5.00)
CAPITAL EXP. (143.00)
CONTINUATION
VALUE
11
FCF 143.00 27.11 38.11
ANUITY (12%) 1.00000 5.32825 0.32197

FINANCE(NET PRESENT VALUES OF THE PROJECT) 7
NPV -143.00 144.45 12.27 $13.72
QUESTION 3.
FREE CASH FLOWS FOR YEAR 0-YEAR 10
YEARS 0 1 2 …….. 9 10
NET INCOME 3,835 3,835 3,835 3,835
Add overhead(after
tax 45%)
450 450 450 450
+dep 2500 2500 2500 2500
-capex 25000
-inc (nwc) 9000 9000
FREE CASH FLOWS -34000 6785 6785 ……… 6785 15785
A.) The free cash flow for year 0 is
$ _-34000
B.) The free cash flow for year 1 is
$ ___6785__
C.) The free cash flow for year 2 is
$ __6785_ million.
D.) The free cash flow for year 3 is
$ 6785 million.
E.) The free cash flow for year 4 is
$ 6785 million.

FINANCE(NET PRESENT VALUES OF THE PROJECT) 8
F.) The free cash flow for year 5 is
$ 6785 million.
G.) The free cash flow for year 6 is
$ 6785 million
H.) The free cash flow for year 7 is
$ 6785 million.
I.) The free cash flow for year 8 is
$ 6785 million.
J.) The free cash flow for year 9 is
$ 6785 million.
K.) The free cash flow for year 10 is $ 15785 million.
CONCLUSION.
In conclusion, it has been established that, net present values of the project differ when the forecasted
revenue changes by different percentages.it has been also noted that free cash flows remain the same
from year 1 to year 9.

FINANCE(NET PRESENT VALUES OF THE PROJECT) 9
REFERENCES.
Babusiaux, D., & Pierru, A. (2009). Investment project valuation: A new equity perspective. The
Engineering Economist, 54(2), 101-108.
Wetekamp, W. (2011, September). Net Present Value (NPV) as a tool supporting effective project
management. In Proceedings of the 6th IEEE International Conference on Intelligent Data
Acquisition and Advanced Computing Systems (Vol. 2, pp. 898-900). IEEE.