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  • Capital Budgeting

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    shik171294
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    1) The document presents financial information for two capital budgeting projects over multiple years, including costs, revenues, depreciation, taxes, operating cash flows, and NPV calculations. 2) The second project involves replacing an existing machine with a new one, showing the costs and cash flows from selling the old machine. It determines the project has a positive NPV of over Rs. 500,000 and an IRR of 31%. 3) The third section shows financial projections for a sneaker line from 2012-2018, including revenues, costs, and calculations for EBIT. It considers factors like quantity, price, revenue, costs, depreciation, and the impact of cannibalization.

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    capital budgeting solutions

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    1) The document presents financial information for two capital budgeting projects over multiple years, including costs, revenues, depreciation, taxes, operating cash flows, and NPV calculations. 2) The second project involves replacing an existing machine with a new one, showing the costs and cash flows from selling the old machine. It determines the project has a positive NPV of over Rs. 500,000 and an IRR of 31%. 3) The third section shows financial projections for a sneaker line from 2012-2018, including revenues, costs, and calculations for EBIT. It considers factors like quantity, price, revenue, costs, depreciation, and the impact of cannibalization.

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    © All Rights Reserved
    Als XLSX, PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    33 Ansichten6 Seiten

    Capital Budgeting

    Hochgeladen von

    shik171294
    1) The document presents financial information for two capital budgeting projects over multiple years, including costs, revenues, depreciation, taxes, operating cash flows, and NPV calculations. 2) The second project involves replacing an existing machine with a new one, showing the costs and cash flows from selling the old machine. It determines the project has a positive NPV of over Rs. 500,000 and an IRR of 31%. 3) The third section shows financial projections for a sneaker line from 2012-2018, including revenues, costs, and calculations for EBIT. It considers factors like quantity, price, revenue, costs, depreciation, and the impact of cannibalization.

    Copyright:

    © All Rights Reserved
    Als XLSX, PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    von 6

    Captial Budgeting

    Q1
    Year 0 1 2 3 4 5
    Cost of machine -500000
    Cost saving 200000 200000 200000 200000 200000
    Depreciation 100000 100000 100000 100000 100000
    EBIT 100000 100000 100000 100000 100000
    Taxes @40% 40000 40000 40000 40000 40000
    EBAT 60000 60000 60000 60000 60000
    Add: Depreciation 100000 100000 100000 100000 100000
    Operating CF 160000 160000 160000 160000 160000
    Sale price of machine 75000
    Tax on profit/loss on sale -30000
    Tax Rate*(Book value-Sale price)

    Free Cash Flow -500000 160000 160000 160000 160000 205000


    Depreciation 85000
    But for maximizing Depreciation We can take salvage value as 0
    Captial Budgeting
    Q2
    Year 0 1 2 3 4 5 6
    Cost of machine -480000
    Sale of old machine 100000
    Tax on profit/loss on sale 56000
    Cost saving 135000 135000 135000 135000 135000 135000
    Out of pocket saving 25000 25000 25000 25000 25000 25000
    Saving in annual charge 0 0 0 0 0 0
    Depreciation on new machine - 40000 40000 40000 40000 40000 40000
    Depreciation on old machine + 20000 20000 20000 20000 20000 20000
    EBIT 140000 140000 140000 140000 140000 140000
    Taxes @40% 56000 56000 56000 56000 56000 56000
    EBAT 84000 84000 84000 84000 84000 84000
    Add: Depreciation 20000 20000 20000 20000 20000 20000
    Operating CF 104000 104000 104000 104000 104000 104000
    Sale price of new machine
    Tax on profit/loss on sale(new)
    Tax Rate*(Book value-Sale price)

    Free Cash Flow -324000 104000 104000 104000 104000 104000 104000
    Net present value @7% ₹ 502,039.37

    IRR(Internal rate of return) 31%


    Payback period
    Cummilative cash flow -324000 -220000 -116000 -12000 92000
    Payback period (undiscounted cash flow) 3.115385 Years
    Lowest payback (Hurdle period)

    Discounted payback period


    Use PV of CF to compute cummilative CF
    -324000
    7 8 9 10 11 12

    135000 135000 135000 135000 135000 135000


    25000 25000 25000 25000 25000 25000
    0 0 0 0 0 0
    40000 40000 40000 40000 40000 40000
    20000 20000 20000 20000 20000 20000
    140000 140000 140000 140000 140000 140000
    56000 56000 56000 56000 56000 56000
    84000 84000 84000 84000 84000 84000
    20000 20000 20000 20000 20000 20000
    104000 104000 104000 104000 104000 104000

    104000 104000 104000 104000 104000 104000


    Sneakers 2013

    Year 2012 2013 2014 2015 2016 2017 2018


    Quantity 1.2 1.6 1.4 2.4 1.8 0.9
    Price/unit 115 115 115 115 115 115
    Gross Revenue 138 184 161 276 207 103.5
    Lost Sale 35 15
    Net sale 103 169 161 276 207 103.5
    VC 56.65 92.95 88.55 151.8 113.85 56.925
    SG&A 7 7 7 7 7 7
    Endorsement 2 2 2 2 2 2
    Advt and promotion 25 15 10 30 25 15
    R&D 0 0 0 0 0 0
    Cost of factory -150
    Depreciation 3.9 7.5 7.05 6.75 6.45 6
    Cost of equipment 15
    Installation cost 5
    Depreciation on equipment
    EBIT
    Cannebalization

    Sunk Cost

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