Financial analysis

Average price
Payout
PAT+Depn. (m)
Cpex (m)
Debt/Value
ROE

1958
31.50
50%
59
28
6.1%
16.7%

1959
45.50
52%
68
24
3.8%
17.1%

1960
62.31
52%
76
35
2.5%
17.6%

1961
87.81
52%
85
40
1.7%
17.4%

1962
76.50
55%
93
42
1.8%
17.2%

Super specific investments:

Jell-O fac. used:

Land
Buildings
Total

Building
Agglomerator
Total shared facilities

80
120
200

Value

1963
84.06
57%
103
57
1.6%
17.4%

Super
Share
200
2/3
640
1/2

1964
85.75
60%
110
70
1.1%
17.1%
Amount
133
320
453

1965
83.69
58%
115
54
1.7%
16.3%

1966
72.50
56%
126
65
2.9%
16.5%

1967
73.13
56%
133
59
3.7%
16.2%

ROE
1-b
Growth rate
Div. yield
rE
Cost of capital
Tax rate

No OH, No charge Jell-O facilities & non erosion

OH allocated, Jell-O facilities included
Jell-O erosion - NPV impact
Jell-O erosion accounted

16%
44%
7.0%
3.0%
10.0%
10%
49%

NPV Analysis
Year
Gross profit
Less: Advertising expenses
Start-up costs
PBT
Taxes (49%) based on Ex.3: 1967
Net profit
Investment tax credit
Add: depreciation
Cash flow from operations = + depn.

Item No.
27
28
15

Capital invested
Mar '67=160, June '68=40
Incr. Net working capital:
20
Total cash flow
NPV of Super
At 10% rate (assumption)

1967
0

15.0
(15.0)
(7.35)
(7.65)

(7.65)
(160.0)
(167.7)
958.0

1968
1
1012
1100

1969
2
1104
1050

1970
3
1196
1000

1971
4
1288
900

1972
5
1380
700

1973
6
1380
700

1974
7
1472
730

1975
8
1472
730

1976
9
1564
750

1977
10
1564
750

(88.0)
(43.1)
(44.9)
1.0
19.0
(24.88)

54.0
26.5
27.5
1.0
18.0
46.5

196.0
96.0
100.0
1.0
17.0
118.0

388.0
190.1
197.9
1.0
16.0
214.9

680.0
333.2
346.8
1.0
15.0
362.8

680.0
333.2
346.8
1.0
13.0
360.8

742.0
363.6
378.4
1.0
12.0
391.4

742.0
363.6
378.4
1.0
11.0
390.4

814.0
398.9
415.1

814.0
398.9
415.1

(40.0)
(329)
(393.9)

55
101.5

3
121.0

1
215.9

29
391.8

(1)
359.8

(13)
378.4

10.0
9.0
425.1
424.1
Salvage value
Recovery rate
327.0
0%
0
(12)
0
390.4
413.1
424.1

Alternative NPV calculations:

A. Jell-O facilites not used
Depreciation:
Dedicated investments
Implied depreciation rate = (depn./ 200)
Incr. Depn. Jell-O equipmts.
Building (133 = 200 x 2/3)
Agglomerator (320 = 640 X 1/2)
Total incremental depreciation

19

18

17

16

15

13

12

11

10

9.5%

9.0%

8.5%

8.0%

7.5%

6.5%

6.0%

5.5%

5.0%

12.7
30.4
43.1

12.0
28.8
40.8

11.3
27.2
38.5

10.7
25.6
36.3

10.0
24.0
34.0

8.7
20.8
29.5

8.0
19.2
27.2

7.3
17.6
24.9

6.7
16.0
22.7

140
Total depn.
4.5%
70.0%
salvage
value
6.0
39.7
14.4
96.0
20.4

21.1

20.0

18.9

17.8

16.7

14.4

13.3

12.2

11.1

10.0

(453.0)
(351.4)

21.1

20.0

18.9

17.8

16.7

14.4

13.3

12.2

11.1

0.0
10.0

(136.5)
(136.5)

(90)
(45.9)

(90)
(45.9)

(90)
(45.9)

(90)
(45.9)

(90)
(45.9)

(90)
(45.9)

(230)
(117.3)

(230)
(117.3)

(240)
(122.4)

(240)
(122.4)

(250)
(127.5)

(250)
(127.5)

13

rate as above
rate as above

Depreciation tax shelter

Investment avoided
Terminal cashflow lost
Net cash flow
Incremental NPV
Revised incremental NPV of Super

(453.0)

B. Overhead expenses allocated

Changes in OH =211-157 = 54 x 10/6
After-tax overhead savings
Incremental NPV
Revised incremental NPV of Super
C. Erosion of contribution from Jell-O
20% contribution lost
After-tax contribution loss
Incremental NPV
Revised incremental NPV of Super

Base case
Incremental NPVs:
Jell-O facilities have opportunity cost
Incremental overheads certain
Canniabilisation on Jell-O due to Super

34

(180)
(91.8)
(687.0)
270.9

Total
NPV @ NPV @
10%
10%
958.0
(351.4)
(136.5)
(687.0)

606.6
470.0
(217.0)

(200)
(102.0)

(210)
(107.1)

(220)
(112.2)

(136.5)
958.0
(687.0)
270.9

ery rate

60

Recovery
0%
0%