▼ Exhibit 1, Labor-Intensive, $000

Year
0 1
Investments
Plant and equipment $900
Change in Net Working Capital $140
Demand (thousands of pounds) 1,200
Capacity (thousands of pounds) 600
Sales (thousands of pounds) 600
Sales price/unit $1.9

Variable costs/unit
Manufacturing 1.30
Marketing 0.10
Total variable costs/unit 1.40

Fixed costs
Overhead 210
Depreciation 60
Start-up costs 50
Total fixed costs 320

Sales Revenue $1,140

-Total Variable Costs 840
-Total Fixed Costs 320
Profit before taxes -20
-Taxes (taxe rate = 50%) 10
Net Operating Profit after taxes -10
Cash flow from operations
+Profit after taxes +depreciation 50
-Capital Expenditures 900 0
-Change in NWC 140
Free cash flow -$900 -$90
Terminal value (year 15)
N.A. = not available.

▼ Exhibit 2, Capital-Intensive, $000

0 1
Investments
Plant and equipment $1,900 $1,400
Change in Net Working Capital
Demand (thousands of pounds)
 Capacity (thousands of pounds)
Sales (thousands of pounds)
Sales price/unit

Variable costs/unit
Manufacturing
Selling
Total variable costs/unit

Fixed costs
Overhead
Depreciation
Start-up costs
Total fixed costs

Sales Revenue
-Total Variable Costs
-Total Fixed Costs
Profit before taxes
-Taxes (tax rate = 50%)
Net Operating Profit after taxes
Cash flow from operations
+Profit after taxes +depreciation
-Capital Expenditures 1,900 1,400
-Change in NWC
Free cash flow -$1,900 -$1,400
Terminal value (year 15)

▼ Exhibit 3, Breakeven Analysis

Labor-Intensive Capital-Intensive
Normal ($1.90 price)
Fixed costs
Operations $210,000 $110,000
Depreciation 60,000 167,000
Total $270,000 $277,000

Sales price per unit $1.9 $1.9

Variable Cost per unit $1.4 $1.2
Contribution per unit 0.50 0.75
Units to breakeven 540,000 369,333
Price competitive($1.70 price)
Contribution per unit $0.3 $0.6
Units to breakeven 900,000 503,636
ㄎㄎ
 Year
2 3 4 5-15

$14 $15 $17 $20

1,320 1,452 1,597 N.A.
1,500 1,500 1,500 1,500
1,320 1,452 1,500 1,500
$1.9 $1.9 $1.9 $1.9

1.30 1.30 1.30 1.30

0.10 0.10 0.10 0.10
1.40 1.40 1.40 1.40

210 210 210 210

60 60 60 60
0 0 0 0
270 270 270 270

$2,508 $2,759 $2,850 $2,850

1,848 2,033 2,100 2,100
270 270 270 270
390 456 480 480
-195 -228 -240 240
195 228 240 240

255 288 300 300

0 0 0 0
14 15 17 20
$241 $273 $283 $280
$381

Year
2 3 4 5 6

$160 $11 $17 $20 $24

1,320 1,452 1,597 1,757 1,933
 700 2,000 2,000 2,000 2,000
700 1,452 1,597 1,757 1,933
$1.9 $1.9 $1.9 $1.9 $1.9

0.95 0.95 0.95 0.95 0.95

0.20 0.20 0.20 0.20 0.20
1.15 1.15 1.15 1.15 1.15

110 110 110 110 110

167 167 167 167 167
100 0 0 0 0
377 277 277 277 277

1,190 2,468 2,715 2,987 3,286

805 1,670 1,837 2,021 2,223
377 277 277 277 277
8 521 601 689 786
4 261 301 345 393
4 261 301 345 393

276 646 707 775 850

0 0 0 0 0
160 11 17 20 24
$116 $635 $690 $755 $826
7-15

$30
2,125
 2,000
2,000
$1.9

0.95
0.20
1.15

110
167
0
277

3,400
2,300
277
823
412
412

879
0
30
$849
$1,384
w MacFadden
Annual sales 10,000,000,000 up
Sales volume growth:
1980-1993 10%
Sales & Profit growth:
1980-1993 10% up

w Jacob Division
Sales 100,000,000
Single product 500,000 ~ 5,000,000
ROE 13%

w Interest Rate
L-T Rf 6%
Firm level hurdle rate:
Cost reduction 8%
Facility Expansion 12%
New products 16%

w Reynolds
Hurdle rate:
New products 16%
Risk premium 4%
Total 20%

w Silicone-X
Price (per pound):
Maximum 2
Planning Purpose 1.9
Competitive 1.7
Demand:
1st year 1,200,000
New competitor 3,000,000
Demand growth: 10% per year
volatility 20%
Cost stable

w Project Analysis
 Selling balance:
Labor
Capital
Capacity expansion:
Labor 125,000 200,000 pounds
Capital 75,000 100,000 pounds
Return Volatility 35%
ㄎㄎ
 0 1 2 3
Investments
Plant and equipment 900
Change in Net Working Capital 140 14 15
Demand (thousands of pounds) 1,200 1,320 1,452
Capacity (thousands of pounds) 600 1,500 1,500
Sales (thousands of pounds) 600 1,320 1,452
Sales price/unit 1.90 1.90 1.90

Variable costs/unit
Manufacturing 1.30 1.30 1.30
Marketing 0.10 0.10 0.10
Total variable costs/unit 1.40 1.40 1.40

Fixed costs
Overhead 210 210 210
Depreciation 60 60 60
Start-up costs 50 0 0
Total fixed costs 320 270 270

Sales Revenue 1,140 2,508 2,759

-Total Variable Costs 840 1,848 2,033
-Total Fixed Costs 320 270 270
Profit before taxes -20 390 456
-Taxes (taxe rate = 50%) -10 195 228
Net Operating Profit after taxes -10 195 228
Cash flow from operations
+Profit after taxes +depreciation 50 255 288
-Capital Expenditures -900 0 0 0
-Change in NWC 140 14 15
Free cash flow -900 -90 241 273
Terminal value (year 15)
N.A. = not available.
Discounted cash flow(12%) -900 -80 192 194
NPV(12%) 712 -677 -506 -331
Hurdle rate 1 0
Discounted cash flow(16%) -900 -78 179 175
NPV(16%) 351 -684 -535 -387
Hurdle rate 3 0
Discounted cash flow(20%) -900 -75 167 158
NPV(20%) 96 -692 -562 -436
Hurdle rate 2 0
Terminal value if selling the plant 340 354 369
IRR 21.91%
Probability of NPV<0 (12%) 38.86%
Probability of NPV<0 (16%) 43.30%
Probability of NPV<0 (20%) 47.83%
 4 5 6 7 8 9
0 0 0 0
0 0 0 0
17 20 20 20 20 20
1,597 1,757 1,933 2,126 2,126 2,126
1,500 1,500 1,500 1,500 1,500 1,500
1,500 1,500 1,500 1,500 1,500 1,500
1.90 1.90 1.90 1.90 1.90 1.90
0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00
1.30 1.30 1.30 1.30 1.30 1.30
0.10 0.10 0.10 0.10 0.10 0.10
1.40 1.40 1.40 1.40 1.40 1.40
0 0 0 0
0 0 0 0
210 210 210 210 210 210
60 60 60 60 60 60
0 0 0 0 0 0
270 270 270 270 270 270
0 0 0 0
2,850 2,850 2,850 2,850 2,850 2,850
2,100 2,100 2,100 2,100 2,100 2,100
270 270 270 270 270 270
480 480 480 480 480 480
240 240 240 240 240 240
240 240 240 240 240 240
0 0 0 0
300 300 300 300 300 300
0 0 0 0 0 0
17 20 20 20 20 20
283 280 280 280 280 280

180 159 142 127 113 101

-169 -25 102 215 315 403

156 133 115 99 85 74

-254 -141 -44 38 108 167

136 113 94 78 65 54
-327 -237 -164 -104 -55 -15

386 406 426 446 466 486

 10 11 12 13 14 15
0 0 0 0 0 0
0 0 0 0 0 0
20 20 20 20 20 20
2,126 2,126 2,126 2,126 2,126 2,126
1,500 1,500 1,500 1,500 1,500 1,500
1,500 1,500 1,500 1,500 1,500 1,500
1.90 1.90 1.90 1.90 1.90 1.90
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
1.30 1.30 1.30 1.30 1.30 1.30
0.10 0.10 0.10 0.10 0.10 0.10
1.40 1.40 1.40 1.40 1.40 1.40
0 0 0 0 0 0
0 0 0 0 0 0
210 210 210 210 210 210
60 60 60 60 60 60
0 0 0 0 0 0
270 270 270 270 270 270
0 0 0 0 0 0
2,850 2,850 2,850 2,850 2,850 2,850
2,100 2,100 2,100 2,100 2,100 2,100
270 270 270 270 270 270
480 480 480 480 480 480
240 240 240 240 240 240
240 240 240 240 240 240
0 0 0 0 0 0
300 300 300 300 300 300
0 0 0 0 0 0
20 20 20 20 20 20
280 280 280 280 280 661
381

90 80 72 64 57 121
480 549 610 664 711 823

63 55 47 41 35 71
217 260 296 327 353 417

45 38 31 26 22 43
18 44 66 84 99 135

506 526 546 566 586 606

 0 1 2 3
Investments
Plant and equipment 1,900 1,400
Change in Net Working Capital 160 11
Demand (thousands of pounds) 1,100 1,210 1,331
Capacity (thousands of pounds) 700 2,000
Sales (thousands of pounds) 700 1,331
Sales price/unit 1.90 1.90

Variable costs/unit
Manufacturing 0.95 0.95
Selling 0.20 0.20
Total variable costs/unit 1.15 1.15

Fixed costs
Overhead 110 110
Depreciation 167 167
Start-up costs 100 0
Total fixed costs 377 277

Sales Revenue 1,330 2,529

-Total Variable Costs 805 1,531
-Total Fixed Costs 377 277
Profit before taxes 148 721
-Taxes (taxe rate = 50%) 74 361
Net Operating Profit after taxes 74 361
Cash flow from operations
+Profit after taxes +depreciation 241 528
-Capital Expenditures (1,900) (1,400) 0 0
-Change in NWC 160 11
Free cash flow (1,900) (1,400) 81 517
Terminal value (year 15)
N.A. = not available.
Discounted cash flow (12%) (1,900) (1,250) 65 368
NPV 546
Hurdle rate 12.00%
Discounted cash flow (16%) (1,900) (1,207) 60 331
NPV (312)
Hurdle rate 16.00%
Discounted cash flow (20%) (1,900) (1,167) 56 299
NPV (897)
Hurdle rate 20.00%

IRR 14.36%
Probability of NPV<0 (12%) 47.31%
Probability of NPV<0 (16%) 51.87%
Probability of NPV<0 (20%) 56.40%

1000 -1078.99241407
1100 -896.690034246
1200
1300
1400
1500
1600
1700
1800
1900
2000
 4 5 6 7 8 9
0 0
0 0
17 20 24 30 30 30
1,464 1,611 1,772 1,949 1,949 1,949
2,000 2,000 2,000 2,000 2,000 2,000
1,464 1,611 1,772 1,949 1,949 1,949
1.90 1.90 1.90 1.90 1.90 1.90
0 0
0
0.95 0.95 0.95 0.95 0.95 0.95
0.20 0.20 0.20 0.20 0.20 0.20
1.15 1.15 1.15 1.15 1.15 1.15
0 0
0 0
110 110 110 110 110 110
167 167 167 167 167 167
0 0 0 0 0 0
277 277 277 277 277 277
0 0
2,782 3,060 3,366 3,703 3,703 3,703
1,684 1,852 2,037 2,241 2,241 2,241
277 277 277 277 277 277
821 931 1,052 1,185 1,185 1,185
411 465 526 592 592 592
411 465 526 592 592 592
0 0
578 632 693 759 759 759
0 0 0 0 0 0
17 20 24 30 30 30
561 612 669 729 729 729

356 348 339 330 295 263

310 292 275 258 222 192

270 246 224 204 170 141

 10 11 12 13 14 15
0 0 0 0 0 0
0 0 0 0 0 0
30 30 30 30 30 30
1,949 1,949 1,949 1,949 1,949 1,949
2,000 2,000 2,000 2,000 2,000 2,000
1,949 1,949 1,949 1,949 1,949 1,949
1.90 1.90 1.90 1.90 1.90 1.90
0 0 0 0 0 0
0 0 0 0 0 0
0.95 0.95 0.95 0.95 0.95 0.95
0.20 0.20 0.20 0.20 0.20 0.20
1.15 1.15 1.15 1.15 1.15 1.15
0 0 0 0 0 0
0 0 0 0 0 0
110 110 110 110 110 110
167 167 167 167 167 167
0 0 0 0 0 0
277 277 277 277 277 277
0 0 0 0 0 0
3,703 3,703 3,703 3,703 3,703 3,703
2,241 2,241 2,241 2,241 2,241 2,241
277 277 277 277 277 277
1,185 1,185 1,185 1,185 1,185 1,185
592 592 592 592 592 592
592 592 592 592 592 592
0 0 0 0 0 0
759 759 759 759 759 759
0 0 0 0 0 0
30 30 30 30 30 30
729 729 729 729 729 2,113
1,384

235 210 187 167 149 386

165 143 123 106 91 228

118 98 82 68 57 137
 0 1 2 3 4
Investments
Plant and equipm 1,900 1,400
Change in Net Working Capital 160 11 17
Demand (thousands of pounds) 3,000 3,300 3,630 3,993
Capacity (thousands of pounds) 700 2,000 2,000
Sales (thousands of pounds) 700 #N/A #N/A
Sales price/unit 1.90 1.70 1.70

Variable costs/unit
Manufacturing 1 1 1
Selling 0 0 0
Total variable costs/unit 1 1 1

Fixed costs
Overhead 110 110 110
Depreciation 167 167 167
Start-up costs 100 0 0
Total fixed costs 377 277 277

Sales Revenue 1,330 #VALUE! #VALUE!

-Total Variable Costs 805 #VALUE! #VALUE!
-Total Fixed Costs 377 277 277
Profit before taxes 148 #VALUE! #VALUE!
-Taxes (taxe rate = 50%) 74 #VALUE! #VALUE!
Net Operating Profit after taxes 74 #VALUE! #VALUE!
Cash flow from operations
+Profit after taxes +depreciation 241 #VALUE! #VALUE!
-Capital Expendit (1,900) (1,400) 0 0 0
-Change in NWC 160 11 17
Free cash flow (1,900) (1,400) 81 #VALUE! #VALUE!
Terminal value (year 15)
N.A. = not available.
Discounted cash f (1,900) (1,207) 60 #VALUE! #VALUE!
NPV #VALUE!
Hurdle rate 16.00%

0.6053 #VALUE! #VALUE!

0.2834586466 #VALUE! #VALUE!
 5 6 7 8 9 10
0 0 0
0 0 0
20 24 30 30 30 30
4,392 4,832 5,315 5,315 5,315 5,315
2,000 2,000 2,000 2,000 2,000 2,000
#N/A #N/A #N/A #N/A #N/A #N/A
1.70 1.70 1.70 1.70 1.70 1.70
0 0 0
0 0 0
1 1 1 1 1 1
0 0 0 0 0 0
1 1 1 1 1 1
0 0 0
0 0 0
110 110 110 110 110 110
167 167 167 167 167 167
0 0 0 0 0 0
277 277 277 277 277 277
0 0 0
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
277 277 277 277 277 277
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
0 0 0
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
0 0 0 0 0 0
20 24 30 30 30 30
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!

#VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!

#VALUE! #VALUE! #VALUE!

#VALUE! #VALUE! #VALUE!
 11 12 13 14 15
0 0 0 0 0
0 0 0 0 0
30 30 30 30 30
5,315 5,315 5,315 5,315 5,315
2,000 2,000 2,000 2,000 2,000
#N/A #N/A #N/A #N/A #N/A
1.70 1.70 1.70 1.70 1.70
0 0 0 0 0
0 0 0 0 0
1 1 1 1 1
0 0 0 0 0
1 1 1 1 1
0 0 0 0 0
0 0 0 0 0
110 110 110 110 110
167 167 167 167 167
0 0 0 0 0
277 277 277 277 277
0 0 0 0 0
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
277 277 277 277 277
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
0 0 0 0 0
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
0 0 0 0 0
30 30 30 30 30
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
1,384

#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!

 Labor-Intensive Capital-Intensive
Normal (售價$1.90)
Fixed costs
Operations 210,000 110,000
Depreciation 60,000 167,000
Total 270,000 277,000

Sales price per unit 2 2

Variable Cost per unit 1 1
Contribution per unit 0.50 0.75
Units to breakeven 540,000 369,333

Price competitive(售價$1.70)
Contribution per unit 0 1
Units to breakeven 900,000 503,636