Scenario Summary

Current Values: Expected Pessimistic Expected

Changing Cells:
Investment -200 -250 -300 -200
Sales 275 200 150 275
Varible cost as
% of sales 56.00% 60.00% 65.00% 56.00%
Fixed cost 15 20 30 15
Cost of capital 12.00% 13.00% 14.00% 12.00%
Result Cells:
NPV $110.34 $18.86 ($63.24) $110.34
IRR 27.88% 15.10% 8.05% 27.88%
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
 Exhibit 11.2 Cash Flow Forecast for Naveen's Flour Mill Project
Year 0 Years 1-10 (Rs. in '000)
1. Investment -200
2. Sales 275
3. Variable Cost (2/3rd of Sales) 154
4. Fixed Cost 15
5. Depreciation 20
6. Pre-tax Profit 86
7. Taxes 10
8. Profit After Taxes 76
9. Cash Flow from Operations 96
10. Net Cash Flow -200 96 96 96 96

Variable Cost as a Percentage of Sales 56.00%

Discount Rate 12.00%
NPV $305.73
IRR 46.98%

Exhibit 11.3 Sensitivity of NPV to Variations in the Value of Key Variables (Rs. in thousands)
Range
Key Variable Pessimistic Expected Optimistic
Investment (Rs. In Million) 300.00 250.00 200.00
Sales (Rs. In Million) 150.00 200.00 275.00
Variable cost as a percentage of sales 65.00% 60.00% 56.00%
Fixed Costs 30.00 20.00 15.00
cost of capital 14% 13% 12%
 Year 0 Years 1-10 ###
1. Investment -250 -250 25863.447
2. Sales 18000 -300 25822.864
3. Variable Cost (2/3rd of Sales) 10080 -200 25904.03
4. Fixed Cost 1000
5. Depreciation 25
6. Pre-tax Profit 6895
7. Taxes 2298.333333
8. Profit After Taxes 4596.666667
9. Cash Flow from Operations 4621.666667
10. Net Cash Flow -250 4621.666667 4621.6667 4621.66667 4621.6667

NPV 25,863.45
Variable Cost Prop 56.00%
12.00%
Data Table
Year 0 Years 1-10 Sales
1. Investment -20000
2. Sales 18000 200
3. Variable Cost (2/3rd of Sales) 12000 150
4. Fixed Cost 1000 275
5. Depreciation 2000
6. Pre-tax Profit 3000
7. Taxes 1000
8. Profit After Taxes 2000
9. Cash Flow from Operations 4000
10. Net Cash Flow -20000 4000 4000 4000 4000

NPV 2,600.89

12.00%
 96 96 96 96 96 96

in thousands)
NPV IRR NPV IRR
Sales 306 46.98% Investment 306 46.98%
120 (38) 6.48% (120) 377 79.77%
160 50 18.57% (140) 359 68.19%
200 139 29.04% (160) 341 59.43%
240 228 38.78% (180) 324 52.55%
280 317 48.14% (200) 306 46.98%
320 406 57.27% (220) 288 42.36%
360 494 66.29% (240) 270 38.45%
400 583 75.22% (260) 252 35.10%
440 672 84.11% (280) 234 32.18%
 4621.6667 4621.667 4621.6667 4621.667 4621.6667 4621.667

Data Table
NPV Var Cost NPV Fixed Cost NPV
2,600.89 ### 2,600.89
-19748.88 60.00% 23151.34 20 6292.3712
-19811.66 65.00% 19761.207 30 6254.703
-19654.71 56.00% 25863.447 15 6311.2052

4000 4000 4000 4000 4000 4000

Sensitivity analysis using the data in Exhibit 11.2 using the built in features of Excel
Sensitivity analysis ('000)
Project life in years 10 Net present values for various values of Sales
Discount rate 12% Investments etc. ( ' 000)
Investment (20,000) Sales 2604 Investment 2,604
Variable costs as a
percentage of sales 66.67% 12,000 (4,932) (12,000) 10,604
Tax rate 33.30% 16,000 92 (14,000) 8,604
Sales per year 18,000 20,000 5,116 (16,000) 6,604
Variable costs per year 12,001 24,000 10,141 (18,000) 4,604
Fixed costs per year 1,000 28,000 15,165 (20,000) 2,604
Depreciation per year 2,000 32,000 20,190 (22,000) 604
Pre-tax profit per year 2,999 36,000 25,214 (24,000) (1,396)
Taxes per year 999 40,000 30,239 (26,000) (3,396)
Profit after taxes per year 2,001 44,000 35,263 (28,000) (5,396)
Cash flow from operation
per year 4,001
Net present value 2,604

Once we get the value of net present value in B 16, to get the values of net present
values for various values of sales, investments etc.proceed as follows.
In column E5, copy the formula from B16 and press enter-the numerical value of
net present value will appear. Next fill in cells D6 to D14 with the various values of sales
for which you wish to have the correspondig net present values. Care should be taken
to leave the cell D5 (the cell adjacent to E5 to the left) . Then select all the cells from
D5 to E14. Go to menu item Data, click on Table. In the dialogue box that will appear
fill in the slot against Column input cell the reference number of the cell whose values
we require- in this case B16 and then click OK. All the cells from E6 to E14 will
automatically get filled with the required values. Now you can give a heading to the
sales column by typing Sales in D5.
Similarly you can proceed to get the NPVs for various investmet values
 Discount rate Project life Tax rate
12% 10 33.33%
Expected values
Investment in year 0 (20,000)
Variable costs as a percentage of sales 66.67%
For years 1 to 10
Sales 18,000
Variable costs =C7*C5 12,001
Fixed costs 1,000
Depreciation =-C4/B2 2,000
Pre-tax profit =C7-C8-C9-C10 2,999
Taxes =C11*C2 1,000
Profit after taxes =C11-C12 2,000
Cash flow from operation =C13+C10 4,000
Present value of the cash flow stream =PV(A2,B2,-C14) 22,599
Net present value of the project =C15+C4 2,599

Key variables Pessimistic Expected Optimistic

Investment -24,000 -20,000 -18,000
Sales 15,000 18,000 21,000
Variable costs as a percent of sales 70 66.67 65
Fixed costs 1,300 1,000 800
 Pessimistic

-24000
0.7

15000

1300

Page 8
 Expected

-20000
0.6667

18000

1000

Page 9
 Optimistic

-18000
0.65

21000

800

Page 10
Break - even analysis-using the data in Exhibit 11.5
('000)
Year 0 1 to 10
Investment (20,000)
Variable costs as a percentage of sales 66.67%
Tax rate 33.30%
Sales per year 18,000 18,000
Variable costs per year 12,001 12000.6
Fixed costs per year 1,000 1,000
Depreciation per year 2,000 2000
Pre-tax profit per year 2,999 2,999
Taxes per year 999 999
Profit after taxes per year 2,001 2,001
Cash flow from operation per year 4,001 4,001
Accounting break-even level of sales 9,001 9001
Calculation of the financial break-even level of sales
Discount rate 12%
Project life in years 10
Total of the present values of the cash inflows 22,604 $22,604
Initial investment 20,000 20,000
Financial break-even level of sales 15,926
 Year 1 Year 2 Year 3
Net Cash Net Cash Net Cash
Flow Probability Flow Probability Flow Probability
3000 0.3 2000 0.2 3000 0.3
5000 0.4 4000 0.6 5000 0.4
7000 0.3 6000 0.2 7000 0.3
1 1 1
Average 5000 4000 5000
Variance 2400000 1600000 2400000

Average NPV 2475.063

s(NPV) 2257.265

Discount Rate 6%
Initial Investment 10000

Standard
Year Average Deviation
1 5000 1500
2 3000 1000
3 4000 2000
4 3000 1200

Discount Rate 6%
Initial Investment 10000

Average of NPV 3122 ₹ 3,122

s(NPV) 4935 ₹ 4,934.84
 Certainty Equivalent Method
Certainty
Expected Equivalent
Year Cash Flow Coefficient
1 1,000,000 0.90
2 1,500,000 0.85
3 2,000,000 0.82
4 2,500,000 0.78

Initial Investment= 4,500,000

Risk free interest rate 5%

NPV 534,569
 Financial Institutions Analyse Risk

A. Variable Costs Sales 265.6

Raw
Power,material and
fuel and consumables
water and variable 137.2 Raw material and consumables 137.2
selling expenses 24.7 Salaries and wages 22

Royalty payments linked to sales 19.2 Repairs and maintenance 2

Administrative and miscellaneous
Interest on working capital loans 10.8 expenses 2.5
Fixed Royalty and know-how
Other variable expenses 5 payments 3
Power, fuel and water and
196.9 variable selling expenses 24.7

B. Fixed and Semi-fixed Costs Royalty payments linked to sales 19.2

Salaries and wages 22 Fixed selling expenses 6.3
Repairs and maintenance 2
Administrative and miscellaneous
expenses 2.5
Fixed selling expenses 6.3 Interest on term debt 12
Fixed Royalty and know-how
payments 3 Interest on working capital loans 10.8
Interest on term debt 12 Depreciation and amortisations 7.5
Depreciation and amortisations 7.5 Profit after depreciation before tax 18.4
55.3 25.9

C. Sales Realisations 265.6

D. Contribution 68.7

Capacity Utilization 70%

BEPCU 56.35%

Cash BEPCU 48.70%

25.9 25.9 25.9 25.9 25.9 25.9 25.9 25.9 25.9
 Exhibit 11.17 Debt Service Coverage Ratio

Year 1 2 3 4 5 6 7
A. Total Cash Accrual
Profit after tax 0.27 0.81 1.35 1.13 0.99 0.99 0.99
Depreciation 0.7 0.7 0.7 0.7 0.7 0.7 0.7
Interest on term loan 1.18 1.18 1.07 0.93 0.78 0.64 0.48
Total 2.15 2.69 3.12 2.76 2.47 2.33 2.17
B. Debt Service
Interest on term loan 1.18 1.18 1.07 0.93 0.78 0.64 0.48
Repayment of term loan 0.4 0.8 0.8 0.8 0.8 0.8
Total 1.18 1.58 1.87 1.73 1.58 1.44 1.28
Average DSCR SUM(C8:L8)/SUM(C12:L12) ( Formula used)
 8 9 10

1.01 1.02 1.04

0.7 0.7 0.7
0.33 0.19 0.04
2.04 1.91 1.78

0.33 0.19 0.04

0.8 0.8 0.4
1.13 0.99 0.44
1.77
 Q P V
value prob Cum Prob two digit value prob Cum Prob two digit value prob
800 0.1 0.1 00-09 20 0.4 0.4 00---39 15 0.3
1000 0.1 0.2 10 ---19 30 0.4 0.8 40---79 20 0.5
1200 0.2 0.4 20----39 40 0.1 0.9 80---89 40 0.2
1400 0.3 0.7 40---69 50 0.1 1 90---99
1600 0.2 0.9 70---89
1800 0.1 1 90-99

Run
Random Numbers
19.00 78.00 79.00 75.00 48.00 1
19.00 59.00 98.00 54.00 12.00 2
97.00 81.00 15.00 37.00 74.00 3
84.00 65.00 16.00 6.00 30.00 4
15.00 68.00 84.00 32.00 71.00 5
15.00 8.00 20.00 29.00 66.00 6
10.00 71.00 89.00 35.00 64.00 7
48.00 11.00 76.00 96.00 98.00 8
61.00 5.00 39.00 27.00 29.00 9
63.00 8.00 13.00 92.00 82.00 10
11
12
13
14
15
800 0 9 800 16
100 10 19 100 17
1200 20 39 1200 18
1400 40 69 1400 19
1600 70 89 1600 20
90 99 1800 21
22
23
24
0 39 20 25
40 79 30 26
80 89 40 27
90 99 50 28
29
0 29 15 30
30 79 20 31
80 99 40 32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
 I 30000
Cum Prob two digit random number r 10%
0.3 00----29 F 3000
0.8 30---79 D 2000
1 80---99 T 0.5
n 5
s 0

Correspo Correspo
Random Random
nding Run nding Run
number number
value of Q value of P
6 800 1 67 30 1
64 1400 2 35 20 2
9 800 3 3 20 3
0 800 4 42 30 4
57 1400 5 1 20 5
45 1400 6 68 30 6
39 1200 7 28 20 7
37 1200 8 54 30 8
25 1200 9 98 50 9
32 1200 10 65 30 10
64 1400 11 64 30 11
43 1400 12 43 30 12
18 100 13 18 20 13
66 1400 14 66 30 14
81 1600 15 81 40 15
93 1800 16 93 50 16
36 1200 17 36 20 17
15 100 18 15 20 18
61 1400 19 61 30 19
34 1200 20 34 20 20
34 1200 21 53 30 21
76 1600 22 82 40 22
26 1200 23 64 30 23
92 1800 24 59 30 24
37 1200 25 62 30 25
82 1600 26 82 40 26
42 1400 27 94 50 27
9 800 28 35 20 28
9 800 29 67 30 29
21 1200 30 94 50 30
67.00 1400 31 6 20 31
24.00 1200 32 38 20 32
39.00 1200 33 26 20 33
76.00 1600 34 13 20 34
16.00 100 35 87 40 35
78.00 1600 36 28 20 36
96.00 1800 37 3 20 37
72.00 1600 38 19 20 38
61.00 1400 39 96 50 39
31.00 1200 40 31 20 40
68 1400 41 31 20 41
59 1400 42 64 30 42
51 1400 43 2 20 43
29 1200 44 33 20 44
89 1600 45 72 30 45
56 1400 46 10 20 46
44 1400 47 70 30 47
95 1800 48 26 20 48
0 800 49 78 30 49
47 1400 50 75 30 50
 Correspo
Random
nding NPV Frequency
number
value of V NPV probability
20 15 -26584.9327 -13545.58 1 0.02
82 40 -39003.3592 -16339.73 1 0.02
45 20 -30310.4607 -17271.11 1 0.02
72 20 -27826.7754 -17892 1 0.02
85 40 -39003.3592 -19133.88 1 0.02
84 40 -34656.9099 -20375.72 1 0.02
62 20 -30310.4607 -22859.4 1 0.02
48 20 -26584.9327 -23790.79 3 0.06
41 20 -19133.8768 -23790.79 2 0.04
20 15 -24722.1688 -23790.79 1 0.02
61 20 -25964.0114 -24722.17 4 0.08
34 20 -25964.0114 -24722.17 3 0.06
53 20 -30310.4607 -24722.17 2 0.04
82 40 -34656.9099 -24722.17 1 0.02
64 20 -20375.7195 -25964 3 0.06
59 20 -13545.5849 -25964 2 0.04
62 20 -30310.4607 -25964 1 0.02
82 40 -30931.382 -26584.93 5 0.1
94 40 -34656.9099 -26584.93 4 0.08
35 20 -30310.4607 -26584.93 3 0.06
67 20 -26584.9327 -26584.93 2 0.04
94 40 -30310.4607 -26584.93 1 0.02
6 15 -24722.1688 -27516.31 1 0.02
38 20 -24722.1688 -27826.78 1 0.02
26 15 -24722.1688 -28137.24 1 0.02
13 15 -17892.0342 -29068.62 1 0.02
87 40 -25964.0114 -30155.23 1 0.02
28 15 -29068.618 -30310.46 14 0.28
3 15 -26584.9327 -30310.46 13 0.26
19 15 -17271.1129 -30310.46 12 0.24
96 40 -39003.3592 -30310.46 11 0.22
31 20 -30310.4607 -30310.46 10 0.2
31 20 -30310.4607 -30310.46 9 0.18
64 20 -30310.4607 -30310.46 8 0.16
2 15 -29534.309 -30310.46 7 0.14
33 20 -30310.4607 -30310.46 6 0.12
72 20 -30310.4607 -30310.46 5 0.1
10 15 -27826.7754 -30310.46 4 0.08
70 20 -17271.1129 -30310.46 3 0.06
26 15 -28447.6967 -30310.46 2 0.04
78 20 -30310.4607 -30310.46 1 0.02
26 15 -23790.7868 -30931.38 1 0.02
92 40 -39003.3592 -34656.91 3 0.06
37 20 -30310.4607 -34656.91 2 0.04
82 40 -35277.8312 -34656.91 1 0.02
42 20 -30310.4607 -35277.83 1 0.02
9 15 -23790.7868 -37761.52 1 0.02
9 15 -27516.3147 -39003.36 3 0.06
21 15 -26584.9327 -39003.36 2 0.04
12 15 -23790.7868 -39003.36 1 0.02
 Chart Title
2.5 0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49
-5000

-10000

-15000

-20000

-25000

-30000

-35000

-40000

-45000
 less than
NPV FrequRF
0
1 43 45 47 49 0
-15000 1 1
-20000 4 5
-25000 9 14
-30000 12 26
-35000 19 45
-40000 5 50
50

NPV Frequnecy
20 19
18
16
14
12
12
10 9
8
6 5
4
4
2 1
0
NPV 1 4 9 12 19
Frequnec
y
NPV Frequnecy
Year Cash flow α Risk free r 8%
0 -30000 1 -30000
1 7000 0.94 6580 NPV ($2,422.01)
2 8000 0.88 7040
3 9000 0.82 7380
4 10000 0.76 7600
5 8000 0.7 5600