Financial Statement Analysis & NPV

This solved assignment focuses on analyzing a company's financial statements, including its income statement, balance sheet, and statement of cash flows. It then calculates the Net Present Value (NPV) of future cash flows based on the provided information and a 9% discount rate. The assignment highlights key financial metrics and demonstrates how they can be used to evaluate the profitability and viability of a business.

ANSWER
(c ) Qualitative Factors relevant for evaluating the Risk
Risk is very important aspect to consider before proceeding with any type of project. The title of
the article suggests that the market of steel has become more competitive and the same fact has
not been expected by any companies across the globe. The reference has been made to prices of
the year 2007 and 2011. The company has decided to go with the steel project. With the passage
of time and with the increase of the population the company is more focusing on the steel framed
structures rather than the concrete based structures. Following qualitative factors are required to
be considered while evaluating the risk associate with the project.
 Onsite Safety – First and foremost factors that determines the risk in the project of the
construction is on site safety. On site safety means the conditions of the work available to
the workers at the work site. It basically deals with the onsite safety that is made
available for the workers working at the site. In case of every project it is required to be
considered. In the given case, the company has opted for the steel framing and as per
report of the Australia Steel Institute, the steel framing construction will reduce the
workers in numbers employed at the location site and thereby reducing the extent of
liability of the builders to the reduced number of workers. There is another major risk
which is linked with the neighbors residing near to or adjacent to the work site. The steel
framed structure so developed will not disturb the neighborhoods in any manner as done
in the concrete structure.
 Project Duration Planning – Though it has been recognized internationally that the steel
framed structure will help in reducing the construction time and will in turn build the
structure in due time. While developing any kind of project, the total time to be taken by
the project shall be analysed and calculated using the cost management techniques
including the PERT – Program Evaluation and Review Technique and CPM – Critical
Path Method. Through this method the company will be able to analyze the risky areas
very easily which is leading the long duration of the project. It has been seen there will
always be the activity which will be resulting in the delay in the completion of the
project. The company shall evaluate those activities and shall reduce the risk of having
the wrong planning of the duration of the project.

 Waste – This is considered as the major factor which each company shall consider before
proceeding with any type of the project. The generation of waste and dumping in the
water is regarded as the violation of the environmental protection law. The company shall
review whether the project so proposed to be taken have considered the aspect of the
protection of the environment or not and have considered the social impact that the
project waste will have. This is generally because of wrong estimation of the project
details. Therefore, there will always be the risk of environmental hazards if the project
has not been evaluated in qualitative terms.
(d) Sensitivity Analysis
SENSITIVITY ANAYSIS ON NPV
1
If Sales
Increased by
10%
YEARS
0 1 2 3 4 5
Cash Outflows
Initial Outlay
$
(100,000,00
0.00)
Rent
$
(864,000.00
)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Working Capital
$
(12,000,000
.00)
Total Cash
Outflow
$
(112,864,00
0.00)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Cash Inflows
Sale of Old
Equipment
$
14,920,000.
00
$
14,935,04
0.00
Tax Savings on
Depreciation
$
5,600,000.
$
4,480,000.
$
3,584,000.
$
2,867,200.
$
2,293,760.

00 00 00 00 00
Working Capital
$
12,000,00
0.00
After Tax Net
Cash Flows
$
42,300,000
.00
$
42,300,00
0.00
$
42,300,00
0.00
$
42,300,000
.00
$
42,300,00
0.00
Total Cash Infow
$
14,920,000.
00
$
47,900,00
0.00
$
46,780,00
0.00
$
45,884,00
0.00
$
45,167,20
0.00
$
71,528,80
0.00
Net Cash Inflow
$
(97,944,000
.00)
$
47,036,00
0.00
$
45,916,00
0.00
$
45,020,00
0.00
$
44,303,20
0.00
$
70,664,80
0.00
PVF(10%,n) 1.00 0.91 0.83 0.75 0.68 0.62
PV of Net Cash
Flows
$
(97,944,000
.00)
$
42,760,000
.00
$
37,947,10
7.44
$
33,824,19
2.34
$
30,259,681
.72
$
43,877,28
1.11
Net Present
Value
$
90,724,262.
60
2 If Variable Cost Increased by 10%
YEARS
0 1 2 3 4 5
Cash Outflows
Initial Outlay
$
(100,000,00
0.00)
$
-
$
-
$
-
$
-
$
-
Rent
$
(864,000.00
)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Working Capital
$
(12,000,000
.00)
$
-
$
-
$
-
$
-
$
-
Total Cash
Outflow
$
(112,864,00
0.00)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Cash Inflows
Sale of Old
Equipment
$
14,920,000.
$
-
$
-
$
-
$
-
$
14,935,04

00 0.00
Tax Savings on
Depreciation
$
-
$
5,600,000.
00
$
4,480,000.
00
$
3,584,000.
00
$
2,867,200.
00
$
2,293,760.
00
Working Capital
$
-
$
-
$
-
$
-
$
-
$
12,000,00
0.00
After Tax Net
Cash Flows
$
38,160,000
.00
$
38,160,00
0.00
$
38,160,00
0.00
$
38,160,000
.00
$
38,160,00
0.00
Total Cash Infow
$
14,920,000.
00
$
43,760,00
0.00
$
42,640,00
0.00
$
41,744,00
0.00
$
41,027,20
0.00
$
67,388,80
0.00
Net Cash Inflow
$
(97,944,000
.00)
$
42,896,00
0.00
$
41,776,00
0.00
$
40,880,00
0.00
$
40,163,20
0.00
$
66,524,80
0.00
PVF(10%,n) 1.00 0.91 0.83 0.75 0.68 0.62
PV of Net Cash
Flows
$
(97,944,000
.00)
$
38,996,363
.64
$
34,525,61
9.83
$
30,713,74
9.06
$
27,432,006
.01
$
41,306,66
6.83
Net Present
Value
$
75,030,405.
37
3 If Working Capital Increased by 10%
YEARS
0 1 2 3 4 5
Cash Outflows
Initial Outlay
$
(100,000,00
0.00)
$
-
$
-
$
-
$
-
$
-
Rent
$
(864,000.00
)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Working Capital
$
(13,200,000
.00)
$
-
$
-
$
-
$
-
$
-
Total Cash
Outflow
$
(114,064,00
0.00)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Cash Inflows
Sale of Old $ $ $ $ $ $

Equipment
14,920,000.
00 - - - -
14,935,04
0.00
Tax Savings on
Depreciation
$
-
$
5,600,000.
00
$
4,480,000.
00
$
3,584,000.
00
$
2,867,200.
00
$
2,293,760.
00
Working Capital
$
-
$
-
$
-
$
-
$
-
$
13,200,00
0.00
After Tax Net
Cash Flows
$
-
$
37,800,000
.00
$
37,800,00
0.00
$
37,800,00
0.00
$
37,800,000
.00
$
37,800,00
0.00
Total Cash Infow
$
14,920,000.
00
$
43,400,00
0.00
$
42,280,00
0.00
$
41,384,00
0.00
$
40,667,20
0.00
$
68,228,80
0.00
Net Cash Inflow
$
(99,144,000
.00)
$
42,536,00
0.00
$
41,416,00
0.00
$
40,520,00
0.00
$
39,803,20
0.00
$
67,364,80
0.00
PVF(10%,n) 1.00 0.91 0.83 0.75 0.68 0.62
PV of Net Cash
Flows
$
(99,144,000
.00)
$
38,669,090
.91
$
34,228,09
9.17
$
30,443,27
5.73
$
27,186,121
.17
$
41,828,24
0.74
Net Present
Value
$
73,210,827.
73
4 If Discount Rate Increased by 10%
YEARS
0 1 2 3 4 5
Cash Outflows
Initial Outlay
$
(100,000,00
0.00)
$
-
$
-
$
-
$
-
$
-
Rent
$
(864,000.00
)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Working Capital
$
(12,000,000
.00)
$
-
$
-
$
-
$
-
$
-
Total Cash
Outflow
$
(112,864,00
0.00)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Cash Inflows

Sale of Old
Equipment
$
14,920,000.
00
$
-
$
-
$
-
$
-
$
14,935,04
0.00
Tax Savings on
Depreciation
$
-
$
5,600,000.
00
$
4,480,000.
00
$
3,584,000.
00
$
2,867,200.
00
$
2,293,760.
00
Working Capital
$
-
$
-
$
-
$
-
$
-
$
12,000,00
0.00
After Tax Net
Cash Flows
$
-
$
37,800,000
.00
$
37,800,00
0.00
$
37,800,00
0.00
$
37,800,000
.00
$
37,800,00
0.00
Total Cash Infow
$
14,920,000.
00
$
43,400,00
0.00
$
42,280,00
0.00
$
41,384,00
0.00
$
40,667,20
0.00
$
67,028,80
0.00
Net Cash Inflow
$
(97,944,000
.00)
$
42,536,00
0.00
$
41,416,00
0.00
$
40,520,00
0.00
$
39,803,20
0.00
$
66,164,80
0.00
PVF(11%,n) 1.00 0.90 0.81 0.73 0.66 0.59
PV of Net Cash
Flows
$
(97,944,000
.00)
$
38,320,720
.72
$
33,614,15
4.70
$
29,627,87
4.77
$
26,219,600
.71
$
39,265,58
8.43
Net Present
Value
$
69,103,939.
33
5
If Sales Decrease
by 10%
YEARS
0 1 2 3 4 5
Cash Outflows
Initial Outlay
$
(100,000,00
0.00)
Rent
$
(864,000.00
)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Working Capital $
(12,000,000

.00)
Total Cash
Outflow
$
(112,864,00
0.00)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Cash Inflows
Sale of Old
Equipment
$
14,920,000.
00
$
14,935,04
0.00
Tax Savings on
Depreciation
$
5,600,000.
00
$
4,480,000.
00
$
3,584,000.
00
$
2,867,200.
00
$
2,293,760.
00
Working Capital
$
12,000,00
0.00
After Tax Net
Cash Flows
$
33,300,000
.00
$
33,300,00
0.00
$
33,300,00
0.00
$
33,300,000
.00
$
33,300,00
0.00
Total Cash Infow
$
14,920,000.
00
$
38,900,00
0.00
$
37,780,00
0.00
$
36,884,00
0.00
$
36,167,20
0.00
$
62,528,80
0.00
Net Cash Inflow
$
(97,944,000
.00)
$
38,036,00
0.00
$
36,916,00
0.00
$
36,020,00
0.00
$
35,303,20
0.00
$
61,664,80
0.00
PVF(10%,n) 1.00 0.91 0.83 0.75 0.68 0.62
PV of Net Cash
Flows
$
(97,944,000
.00)
$
34,578,181
.82
$
30,509,09
0.91
$
27,062,35
9.13
$
24,112,560
.62
$
38,288,98
9.20
Net Present
Value
$
56,607,181.
68
6 If Variable Cost Decreased by 10%
YEARS
0 1 2 3 4 5
Cash Outflows
Initial Outlay
$
(100,000,00
0.00)
$
-
$
-
$
-
$
-
$
-
Rent $
(864,000.00
$
(864,000.0
$
(864,000.0
$
(864,000.0
$
(864,000.0
$
(864,000.0

) 0) 0) 0) 0) 0)
Working Capital
$
(12,000,000
.00)
$
-
$
-
$
-
$
-
$
-
Total Cash
Outflow
$
(112,864,00
0.00)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Cash Inflows
Sale of Old
Equipment
$
14,920,000.
00
$
-
$
-
$
-
$
-
$
14,935,04
0.00
Tax Savings on
Depreciation
$
-
$
5,600,000.
00
$
4,480,000.
00
$
3,584,000.
00
$
2,867,200.
00
$
2,293,760.
00
Working Capital
$
-
$
-
$
-
$
-
$
-
$
12,000,00
0.00
After Tax Net
Cash Flows
$
37,440,000
.00
$
37,440,00
0.00
$
37,440,00
0.00
$
37,440,000
.00
$
37,440,00
0.00
Total Cash Infow
$
14,920,000.
00
$
43,040,00
0.00
$
41,920,00
0.00
$
41,024,00
0.00
$
40,307,20
0.00
$
66,668,80
0.00
Net Cash Inflow
$
(97,944,000
.00)
$
42,176,00
0.00
$
41,056,00
0.00
$
40,160,00
0.00
$
39,443,20
0.00
$
65,804,80
0.00
PVF(10%,n) 1.00 0.91 0.83 0.75 0.68 0.62
PV of Net Cash
Flows
$
(97,944,000
.00)
$
38,341,818
.18
$
33,930,57
8.51
$
30,172,80
2.40
$
26,940,236
.32
$
40,859,60
3.48
Net Present
Value
$
72,301,038.
90
7 If Working Capital Decreased by 10%
YEARS
0 1 2 3 4 5
Cash Outflows
Initial Outlay
$
(100,000,00
0.00)
$
-
$
-
$
-
$
-
$
-
Rent $ $ $ $ $ $

(864,000.00
)
(864,000.0
0)
(864,000.0
0)
(864,000.0
0)
(864,000.0
0)
(864,000.0
0)
Working Capital
$
(10,800,000
.00)
$
-
$
-
$
-
$
-
$
-
Total Cash
Outflow
$
(111,664,00
0.00)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Cash Inflows
Sale of Old
Equipment
$
14,920,000.
00
$
-
$
-
$
-
$
-
$
14,935,04
0.00
Tax Savings on
Depreciation
$
-
$
5,600,000.
00
$
4,480,000.
00
$
3,584,000.
00
$
2,867,200.
00
$
2,293,760.
00
Working Capital
$
-
$
-
$
-
$
-
$
-
$
10,800,00
0.00
After Tax Net
Cash Flows
$
-
$
37,800,000
.00
$
37,800,00
0.00
$
37,800,00
0.00
$
37,800,000
.00
$
37,800,00
0.00
Total Cash Infow
$
14,920,000.
00
$
43,400,00
0.00
$
42,280,00
0.00
$
41,384,00
0.00
$
40,667,20
0.00
$
65,828,80
0.00
Net Cash Inflow
$
(96,744,000
.00)
$
42,536,00
0.00
$
41,416,00
0.00
$
40,520,00
0.00
$
39,803,20
0.00
$
64,964,80
0.00
PVF(10%,n) 1.00 0.91 0.83 0.75 0.68 0.62
PV of Net Cash
Flows
$
(96,744,000
.00)
$
38,669,090
.91
$
34,228,09
9.17
$
30,443,27
5.73
$
27,186,121
.17
$
40,338,02
9.57
Net Present
Value
$
74,120,616.
55
8 If Discount Rate Decreased by 10%
YEARS
0 1 2 3 4 5
Cash Outflows
Initial Outlay
$
(100,000,00
0.00)
$
-
$
-
$
-
$
-
$
-

Rent
$
(864,000.00
)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Working Capital
$
(12,000,000
.00)
$
-
$
-
$
-
$
-
$
-
Total Cash
Outflow
$
(112,864,00
0.00)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
$
(864,000.0
0)
Cash Inflows
Sale of Old
Equipment
$
14,920,000.
00
$
-
$
-
$
-
$
-
$
14,935,04
0.00
Tax Savings on
Depreciation
$
-
$
5,600,000.
00
$
4,480,000.
00
$
3,584,000.
00
$
2,867,200.
00
$
2,293,760.
00
Working Capital
$
-
$
-
$
-
$
-
$
-
$
12,000,00
0.00
After Tax Net
Cash Flows
$
-
$
37,800,000
.00
$
37,800,00
0.00
$
37,800,00
0.00
$
37,800,000
.00
$
37,800,00
0.00
Total Cash Infow
$
14,920,000.
00
$
43,400,00
0.00
$
42,280,00
0.00
$
41,384,00
0.00
$
40,667,20
0.00
$
67,028,80
0.00
Net Cash Inflow
$
(97,944,000
.00)
$
42,536,00
0.00
$
41,416,00
0.00
$
40,520,00
0.00
$
39,803,20
0.00
$
66,164,80
0.00
PVF(9%,n) 1.00 0.92 0.84 0.77 0.71 0.65
PV of Net Cash
Flows
$
(97,944,000
.00)
$
39,023,853
.21
$
34,859,01
8.60
$
31,288,87
4.61
$
28,197,590
.36
$
43,002,58
0.19
Net Present
Value
$
78,427,916.
97