Problem no 12

Solved from product C point of view

No of units produced for A 8000 Tax Rate 30%

No of units produced for B 9500 Surcharge 10%
Investment needed for C 600000 Effective tax rate 33%
Life of the new plant in yrs 5 CAPX at beginning of 3rd yr 150000
Total overhead cost of all 3 products 600000 beginning of 3rd yr = end of 2nd yr
Selling price per unit for C 150 Cost of capital 11%
Material cost per unit for C 50 Subsidy at beginning of 2nd yr = at end of 1st yr
Labour cost per unit for C 30
Expenses cost per unit for C 10
Labour cost increase in 3rd yr 20%

Year (at end) E Sales (in units) MC/u LC/u Exp/u VC/u OC ratio Total VC
1 4200 50 30 10 90 0.194 378000
2 6500 50 30 10 90 0.271 585000
3 7100 50 36 10 96 0.289 681600
4 9400 50 36 10 96 0.349 902400
5 10500 50 36 10 96 0.375 1008000

Therefore total PV of CF 936234

Initial investment 600000
PV of additional investment 121743
NPV 214491

NPV is positive hence project is viable

= at end of 1st yr

Total OC Sales EBITDA Dep EBIT Tax PAT +Dep -CAPX CF

116129 630000 135871 120000 15871 5237 10634 120000 0 130634
162500 975000 227500 120000 107500 35475 72025 120000 150000 42025
173171 1065000 210229 170000 40229 13276 26954 170000 0 196954
209665 1410000 297935 170000 127935 42218 85716 170000 0 255716
225000 1575000 342000 170000 172000 56760 115240 170000 0 285240
Subsidy Total CF PVIF@11% PV of CF
336000 466634 0.901 420391
0 42025 0.812 34108
0 196954 0.731 144011
0 255716 0.659 168448
0 285240 0.593 169276