YASH MERCHANT

1521029
Solution Sheet - Quiz II
Worksheet 2
Expected Case
Worksheet 3 Additional 2 Plants
Worksheet 4
Maximum Case
Worksheet 5
Minimum Case
Worksheet 6
Answer(s)

GIVEN DATA
CAPEX ( For Year 0)
NWC ( For Year 0 )
Life
Price
Operating expenses
variable costs per sales revenue
NWC
Tax Rate

6
10%
5
2
1
45%
10%
38%

Discount Rate

15%

Production per year (high demand)

60%

Production per year( low demand)

Expected production per year

40%

5
3.2

(years)
2.5

PROFORMA INCOME STATEMENT

Y0
Sales revenue
Fixed Operating Expenses
Variable Cost Operating Expenses
EBITDA
Depreciation Expenses
EBIT
Taxes
EBIT (1-t)

Y1
6.4
1
2.88
2.52
1.2
1.32
0.5016
0.8184

PROFORMA BALANCE SHEET

NWC
Gross Plant & Equipment
Less Accumulated Depreciation
Net Plant & Equipment
Total Assets
Interest Bearing Debt
Equity
Total Liabilities and Equity

Y0
0.64
6
6
6.64
6.64
6.64

Y1
0
6
1.2
4.8
4.8
0
4.8
4.8

PROJECT FREE CASH FLOW

EBIT (1-t)

0.8184

Depreciation
Change in Working Capital
CAPEX
PF CF

0.64
6
-6.64

NPV
IRR

1.99
26.75%

1.2
-0.64
0
2.6584

MACRS
Table

5
3.2

5
3.2

5
3.2

5
3.2

Y2
6.4
1
2.88
2.52
1.92
0.6
0.228
0.372

Y3
8
1
3.6
3.4
1.152
2.248
0.85424
1.39376

Y4
8
1
3.6
3.4
0.69
2.71
1.0298
1.6802

Y5
8
1
3.6
3.4
0.69
2.71
1.0298
1.6802

Y2
0.16
6
3.12
2.88
3.04
0
3.04
3.04

Y3
0
6
4.272
1.728
1.728
0
1.728
1.728

Y4
0
6
4.962
1.038
1.038
0
1.038
1.038

Y5
-0.8
6
5.652
0.348
-0.452
0
-0.452
-0.452

0.372

1.39376

1.6802

1.6802

Year
1
2
3
4
5
6
7
8
9
10
11

3-year
0.333
0.445
0.148
0.074

5-year
0.2
0.32
0.192
0.115
0.115
0.058

7-year
0.143
0.245
0.175
0.125
0.089
0.089
0.089
0.045

1.92
0.16
0
2.132

1.152
-0.16
0
2.70576

0.69
0
0
2.3702

0.69
-0.8
0
3.1702

10-year
0.1
0.18
0.144
0.115
0.092
0.074
0.066
0.066
0.065
0.065
0.033

0.143

0.245

0.175

0.125

0.089

0.089

0.2

0.32

0.192

0.115

0.115

0.058

0.089

0.045

GIVEN DATA
CAPEX ( For Year 0)
NWC ( For Year 0 )
Life
Price
Operating expenses
variable costs per sales revenue
NWC
Tax Rate

6
10%
5
2
1
45%
10%
38%

Discount Rate

15%

Production per year (high demand)

Production per year( low demand)
Expected production per year

60%
40%

(years)
2.5

2
5
3.2

PROFORMA INCOME STATEMENT

Y1
Sales revenue
Fixed Operating Expenses
Variable Cost Operating Expenses
EBITDA
Depreciation Expense
EBIT
Taxes
EBIT (1-t)

Y2
10
1
4.5
4.5
1.2
3.3
1.254
2.046

PROFORMA BALANCE SHEET

NWC
Gross Plant & Equipment
Less Acc. Depreciation
Net Plant & Equipment
Total Assets
Interest Bearing Debt
Equity
Total Liabilities and Equity

Y1
1
6
6
7
7
7

PROJECT FREE CASH FLOW

Y1

EBIT (1-t)
Depreciation
Change in Working Capital

Y2
0.25
6
1.2
4.8
5.05
0
5.05
5.05
Y2
2.046
1.2
-0.75

CAPEX
PF CF

6
-7

NPV at Year 1
NPV at Year 0
NPV of two plants at Year 0

7.51
6.53
13.0672346136

0
3.996

MACRS Table
6th year
2.5

2
5
3.2

2
5
3.2

2
5
3.2

2
5
3.2

Y3
12.5
1
5.625
5.875
1.92
3.955
1.5029
2.4521

Y4
12.5
1
5.625
5.875
1.152
4.723
1.79474
2.92826

Y5
12.5
1
5.625
5.875
0.69
5.185
1.9703
3.2147

Y6
12.5
1
5.625
5.875
0.69
5.185
1.9703
3.2147

Y3
0
6
3.12
2.88
2.88
0
2.88
2.88

Y4
0
6
4.272
1.728
1.728
0
1.728
1.728

Y5
0
6
4.962
1.038
1.038
0
1.038
1.038

Y6
-1.25
6
5.652
0.348
-0.902
0
-0.902
-0.902

Y3
2.4521
1.92
-0.25

Y4
2.92826
1.152
0

Y5
3.2147
0.69
0

Y6
3.2147
0.69
-1.25

Year
1
2
3
4
5
6
7
8
9
10
11

3-year
0.333
0.445
0.148
0.074

5-year
0.2
0.32
0.192
0.115
0.115
0.058

0
4.6221

0
4.08026

0
3.9047

-0.13224
5.28694

7-year
0.143
0.245
0.175
0.125
0.089
0.089
0.089
0.045

10-year
0.1
0.18
0.144
0.115
0.092
0.074
0.066
0.066
0.065
0.065
0.033

0.143

0.245

0.175

0.125

0.089

0.089

0.2

0.32

0.192

0.115

0.115

0.058

0.089

0.045

GIVEN DATA
CAPEX ( For Year 0)
NWC ( For Year 0 )
Life
Price
Operating expenses
variable costs per sales revenue
NWC
Tax Rate

6
10%
5
2
1
45%
10%
38%

Discount Rate
Salvage Value

15%
10%

Production per year (high demand)

Production per year( low demand)
Expected production per year

(years)
2.5

60%
40%

2
5
3.2

PROFORMA INCOME STATEMENT

Y1

Y2
10
1
4.5
4.5
1.2
3.3
1.254
2.046

Y1
1
6

7
7

Y2
0
6
1.2
4.8
4.8
0
4.8
4.8

2.046
1.2
-1

Sales Revenue
Fixed Operating Expenses
Variable Cost Operating Expenses
EBITDA
Depreciation Expense
EBIT
Taxes
EBIT (1-t)

PROFORMA BALANCE SHEET

NWC
Gross Plant & Equipment
Less Acc. Depreciation
Net Plant & Equipment
Total Assets
Interest Bearing Debt
Equity
Total Liabilities and equity

6
7

Project Free Cash Flow

EBIT (1-t)
Depreciation
Change in Working Capital

CAPEX
PF CF

6
-7

NPV
IRR

7.06
50.77%

0
4.246

MACRS
Table
6th year
2.5

2
5
3.2

2
5
3.2

2
5
3.2

2
5
3.2

Y3
10
1
4.5
4.5
1.92
2.58
0.9804
1.5996

Y4
12.5
1
5.625
5.875
1.152
4.723
1.79474
2.92826

Y5
12.5
1
5.625
5.875
0.69
5.185
1.9703
3.2147

Y6
12.5
1
5.625
5.875
0.69
5.185
1.9703
3.2147

Y3
0.25
6
3.12
2.88
3.13
0
3.13
3.13

Y4
0
6
4.272
1.728
1.728
0
1.728
1.728

Y5
0
6
4.962
1.038
1.038
0
1.038
1.038

Y6
-1.25
6
5.652
0.348
-0.902
0
-0.902
-0.902

1.5996
1.92
0.25

2.92826
1.152
-0.25

3.2147
0.69
0

3.2147
0.69
-1.25

Year
1
2
3
4
5
6
7
8
9
10
11

3-year
0.333
0.445
0.148
0.074

5-year
0.2
0.32
0.192
0.115
0.115
0.058

7-year
0.143
0.245
0.175
0.125
0.089
0.089
0.089
0.045

0
3.2696

0
4.33026

0
3.9047

-0.50424
5.65894

10-year
0.1
0.18
0.144
0.115
0.092
0.074
0.066
0.066
0.065
0.065
0.033

0.143

0.245

0.175

0.125

0.089

0.089

0.2

0.32

0.192

0.115

0.115

0.058

0.089

0.045

GIVEN DATA
CAPEX ( For Year 0)
NWC ( For Year 0 )
Life
Price
Operating expenses
variable costs per sales revenue
NWC
Tax Rate

6
10%
5
2
1
45%
10%
38%

Discount Rate
Salvage Value

15%
10%

Production per year (high demand)

Production per year( low demand)
Expected production per year

60%
40%

(years)
2.5

2
5
3.2

PROFORMA INCOME STATEMENT

Y1
Sales Revenue
Fixed Operating Expenses
Variable Cost Operating Expenses
EBITDA
Depreciation Expenses
EBIT
Taxes
EBIT (1-t)

Y2
4
1
1.8
1.2
1.2
0
0
0

PROFORMA BALANCE SHEET

NWC
Gross Plant & Equipment
Less Acc. Depreciation
Net Plant & Equipment
Total Assets
Interest Bearing Debt
Equity
Total Liabilities and Equity

Y1
0.4
6

6.4
6.4

Y2
0
6
1.2
4.8
4.8
0
4.8
4.8

0.4
6

0
1.2
-0.4
0

6
6.4

Project Free Cash Flow

EBIT (1-t)
Depreciation
Change in Working Capital
CAPEX

PF CF

-6.4

NPV
IRR

-0.96
8.77%

1.6

MACRS
Table
6th year
2.5

2
5
3.2

2
5
3.2

2
5
3.2

2
5
3.2

Y3
4
1
1.8
1.2
1.92
-0.72
-0.2736
-0.4464

Y4
5
1
2.25
1.75
1.152
0.598
0.22724
0.37076

Y5
5
1
2.25
1.75
0.69
1.06
0.4028
0.6572

Y6
5
1
2.25
1.75
0.69
1.06
0.4028
0.6572

Y3
0.1
6
3.12
2.88
2.98
0
2.98
2.98

Y4
0
6
4.272
1.728
1.728
0
1.728
1.728

Y5
0
6
4.962
1.038
1.038
0
1.038
1.038

Y6
-0.5
6
5.652
0.348
-0.152
0
-0.152
-0.152

-0.4464
1.92
0.1
0

0.37076
1.152
-0.1
0

0.6572
0.69
0
0

0.6572
0.69
-0.5
-0.50424

Year
1
2
3
4
5
6
7
8
9
10
11

3-year
0.333
0.445
0.148
0.074

5-year
0.2
0.32
0.192
0.115
0.115
0.058

7-year
0.143
0.245
0.175
0.125
0.089
0.089
0.089
0.045

1.3736

1.62276

1.3472

2.35144

10-year
0.1
0.18
0.144
0.115
0.092
0.074
0.066
0.066
0.065
0.065
0.033

0.143

0.245

0.175

0.125

0.089

0.089

0.2

0.32

0.192

0.115

0.115

0.058

0.089

0.045

Answer - 1.

Probability of high demand

Probability of low demand
NPV of high demand
NPV of low demand
Expected NPV

40%
60%
7.06
-0.96
2.2448472196

IRR of low demand

IRR of high demand

8.77%
50.77%

Expected IRR

25.57%

In Million US$

Considering the above figures, Alpha Packaging should go ahead with the inve

Answer - 2.

Real Option [Option to Expand]

NPV at t=0 with real options

7.47

In Million US$

o ahead with the investment.