A

1 Analysis of an Expansion Project: Inputs and Key Results (Dollars in Thousands)

2 Part 1. Inputs and Key Results

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4 Inputs
5 Equipment cost
6 Salvage value, equipment, Year 4
7 Units sold, Year 1
8 Annual change in units sold, after Year 1
9 Sales price per unit, Year 1
10 Annual change in sales price, after Year 1
11 Variable cost per unit (VC), Year 1
12 Annual change in VC, after Year 1
13 Nonvariable cost (Non-VC), Year 1
14 Annual change in Non-VC, after Year 1
15 Project cost of capital, r
16 Tax rate
17 Working capital as % of next year's sales
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Analysis of a New (Expansion) Project: Cash Flows and Performance Measures
21 (Dollars in Thousands)

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23 Part 2. Cash Flows and Performance Measures
24 Intermediate Calculations
25 Unit sales
26 Sales price per unit
27 Variable cost per unit (excl. depr.)
28 Nonvariable costs (excl. depr.)
29 Sales revenues = Units × Price/unit
30 NOWCt = 15%(Revenuest+1)
31 Basis for depreciation
32 Annual depreciation rate (MACRS)
33 Annual depreciation expense
34 Remaining undepreciated value
35 Cash Flow Forecast
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37 Sales revenues = Units × Price/unit
38 Variable costs = Units × Cost/unit
39 Nonvariable costs (excluding depr.)
40 Depreciation
41 Earnings before int. and taxes (EBIT)
42 Taxes on operating profit (40% rate)
43 Net operating profit after taxes
44 Add back depreciation
45 Equipment purchases
46 Salvage value
47 Cash flow due to tax on salv. val.
48 Cash flow due to change in WC
49 Project net cash flows: Time Line
50 Project Evaluation Measures
51 NPV
52 IRR
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 B C D E F G
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4 Base-Case
5 $7,750
6 $639
7 10,000
8 15%
9 $1.50
10 4%
11 $1.07
12 3%
13 $2,120
14 3%
15 10%
16 40%
17 15%
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ormance Measures
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24 0 1 2
25 10,000 11,500
26 $1.50 $1.56
27 $1.07 $1.10
28 $2,120 $2,184
29 $15,000 $17,940
30 $2,250 $2,691 $3,218
31 $7,750
32 33.33% 44.45%
33 $2,583 $3,445
34 $5,167 $1,722
35 Cash Flows at End of Year
36 0 1 2
37 $15,000 $17,940
38 $10,700 $12,674
39 $2,120 $2,184
40 $2,583 $3,445
41 −$403 −$363
42 −$161 −$145
43 −$242 −$218
44 $2,583 $3,445
45 −$7,750
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48 −$2,250 −$441 −$527
49 −$10,000 $1,900 $2,700
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51 $1,048
52 13.79%
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 H I
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25 13,225 15,209
26 $1.62 $1.69
27 $1.14 $1.17
28 $2,249 $2,317
29 $21,456 $25,662
30 $3,849
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32 14.81% 7.41%
33 $1,148 $574
34 $574 $0
Cash Flows
35 at End of Year
36 3 4
37 $21,456 $25,662
38 $15,013 $17,782
39 $2,249 $2,317
40 $1,148 $574
41 $3,047 $4,988
42 $1,219 $1,995
43 $1,828 $2,993
44 $1,148 $574
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46 $639
47 −$256
48 −$631 $3,849
49 $2,345 $7,800
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 B C D E F G
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4 Inflation Omitted
5 $7,750
6 $639
7 10,000
8 15%
9 $1.50
10 0%
11 $1.07
12 0%
13 $2,120
14 0%
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16 40%
17 15%
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 B C D E F G
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4 Base-Case
5 $7,750
6 $639
7 10,000
8 15%
9 $1.50
10 4%
11 $1.07
12 3%
13 $2,120
14 3%
15 10%
16 40%
17 15%
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 B C D E F G
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4 Project S
5 $8,750
6 $433
7 10,000
8 0%
9 $2.50
10 -5%
11 $1.64
12 6%
13 $1,815
14 4%
15 10%
16 40%
17 5%
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 A
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32 Annual depreciation rate (MACRS)
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 B C D E F G
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32 33.33% 44.45%
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32 14.81% 7.41%
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 A
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32 Annual depreciation rate (Straight-Line)
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 B C D E F G
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32 16.67% 33.33%
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 H I
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Scenario Name Base Worst Best

Probability of Scenario 50% 25% 25%

50%
Scenario Name Base Worst Best
Base
Equipment cost $7,750 $8,250 $7,250 $7,750
Salvage value, equipment, Year 4 $639 $639 $639 $639
Units sold, Year 1 10,000 8,500 11,500 10,000
Annual change in units sold, after Year 1 15% 5% 25% 15%
Sales price per unit, Year 1 $1.50 $1.25 $1.75 $1.50
Annual change in sales price, after Year 1 4% 4% 4% 4%
Variable cost per unit (VC), Year 1 $1.07 $1.17 $0.97 $1.07
Annual change in VC, after Year 1 3% 3% 3% 3%
Nonvariable cost (Non-VC), Year 1 $2,120 $2,330 $1,910 $2,120
Annual change in Non-VC, after Year 1 3% 3% 3% 3%
Project cost of capital, r 10% 10% 10% 10%
Tax rate 40% 50% 30% 40%
Working capital as % of next year's sales 15% 15% 15% 15%
Scenario Number 1