The city of Middleville is considering offer

$ 1,400,000.00 CapEx M stands for million). The useful life of the

per year and they would need a major ove
18 years duration addition to the annual maintenance. Annu
$ 120,000.00 annual cost at 2.0% per year thereafter. The buses wil
$ 755,000.00 in year 10 additional one time cost thereafter. Reduced parking requirements
$ 165,000.00 SG&A cost year. The salvage value (price the city can
expected to be $405,000. What is the NPV
2% growth annually 5.2%. Assume that all cash flows except in
$ 275,000.00 Revenue encouraged to use a spreadsheet to solve
5.50% growth annually
$ 320,000.00 saving per year
$ 405,000.00 terminal value
5.20% discount rate

0 1 2 3 4 5 6
Revenue 0 275000.0 290125.0 306081.9 322916.4 340676.8 359414.0
COGS 0 -120000.0 -120000.0 -120000.0 -120000.0 -120000.0 -120000.0
SG&A 0 -165000.0 -168300.0 -171666.0 -175099.3 -178601.3 -182173.3
Oper Prof 0 -10000.0 1825.0 14415.9 27817.1 42075.5 57240.7
CapX -1400000 0.0 0.0 0.0 0.0 0.0 0.0
FCF -1400000 -10000.0 1825.0 14415.9 27817.1 42075.5 57240.7
PV(FCF) -1,400,000 ₽ -9505.7 1649.0 12382.1 22711.6 32655.0 42228.9
PV(Terminal Value) $ 162,619
PV(savings) $ 3,682,900

NPV $ 3,231,561.80
ville is considering offering public bus service. Setting up the service will cost the city $1.4M (where
n). The useful life of the buses is 18 years. Annual maintenance of the buses would cost $120,000
would need a major overhaul in year 10 that will cost a total of $755,000. This overhaul is in
nual maintenance. Annual labor and administrative costs will begin at $165,000 in year 1 and grow
ereafter. The buses will generate revenue of $275,000 in year 1 and it will grow at 5.5% per year
d parking requirements and other benefits generated by the project will save the city $320,000 per
alue (price the city can get in the future after maintenance) of the used buses in year 18 is
05,000. What is the NPV of the bus proposal? The city does not pay taxes and the discount rate is
all cash flows except initial investments happen at the end of the year and you are strongly
a spreadsheet to solve this problem.

7 8 9 10 11 12 13 14 15 16
379181.8 400036.8 422038.8 445250.9 469739.7 495575.4 522832.1 551587.8 581925.2 613931.0
-120000.0 -120000.0 -120000.0 -875000.0 -120000.0 -120000.0 -120000.0 -120000.0 -120000.0 -120000.0
-185816.8 -189533.1 -193323.8 -197190.3 -201134.1 -205156.8 -209259.9 -213445.1 -217714.0 -222068.3
73365.0 90503.6 108715.0 -626939.3 148605.6 170418.7 193572.2 218142.7 244211.2 271862.8
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
73365.0 90503.6 108715.0 -626939.3 148605.6 170418.7 193572.2 218142.7 244211.2 271862.8
51449.2 60330.9 68888.7 -377631.4 85086.8 92753.1 100147.1 107280.4 114164.1 120808.6
 17 18
647697.2 683320.6
-120000.0 -120000.0
-226509.6 -231039.8
301187.6 332280.8
0.0 0.0
301187.6 332280.8
127224.1 133420.3
 0.03 discount rate GE has the following two projects that it is c
has an investment outlay/expense today of
three years are $4.8M, $4.8M, and $6.3M. P
A B flows of $0M, $0M, and $16.8M. Which proj
CapX -11800000 -11800000 for similar projects is 3.00%?
4800000 0
4800000 0
6300000 16800000
$ 3,150,046.99 $ 3,574,379.88
ng two projects that it is considering; it can choose only one. Project A
outlay/expense today of $11.8M, and its cash flows over the next
8M, $4.8M, and $6.3M. Project B has an outlay of $11.8M, and cash
, and $16.8M. Which project should GE choose if the cost of capital
is 3.00%?
 Last year your firm had revenue of $27.5 million, cost of
General, & Administration costs (SG&A) of $2.5 million, A
Payables (AP) of $7.0 million and Inventory of $5.5 millio
change in working capital boost revenue 3.5% and AR 14.5%, while holding COGS g
0 1 same as last year? Assume no taxes and no new capital e
wc 7000000 8232500 spreadsheet even for this specific type of question. (Cash
delta wc 0 1232500

0 1
Revenue 27500000 28462500
COGS -14000000-14420000
SG&A -2500000 -2500000
Opr. Prof. 11000000 11542500
Delta WC 0 -1232500
FCF 11000000 10310000
nue of $27.5 million, cost of goods sold (COGS) of $14.0 million, Selling,
osts (SG&A) of $2.5 million, Account Receivables (AR) of $8.5 million, Account
and Inventory of $5.5 million. What will be the free cash flow this year if you
14.5%, while holding COGS growth to 3.0% and everything else remains the
o taxes and no new capital expenditures. You are encouraged to use a
ecific type of question. (Cash flow estimation for a specific year.)
 Silver Bear Golf (SBG) is a manufac
$ 230.00 revenue per item putter they sell brings in $230 of re
expect this number to grow each y
$ 160.00 cost per item foreman at the SBG factory recent
1000 items sold of production. This technology req
0.105 rate of growth of item sales produce all the putters you want t
12 years duration need due to this new technology, a
of investing in the new technology
$ 159,000.00 CapX incrementally; the difference betw
$ 133.00 cost per item will be a big help if you think right.
A probing question that is all abou
0.11 discount rate

items 1000 1105.0 1221.0 1349.2 1490.9 1647.4 1820.4

0 1 2 3 4 5 6
Revenue 0 254150.0 280835.8 310323.5 342907.5 378912.8 418698.6
Alter. COGS 0 -146965.0 -162396.3 -179447.9 -198290.0 -219110.4 -242117.0
Opr. Prof 0 107185.0 118439.4 130875.6 144617.5 159802.3 176581.6
CapX -159000 0.0 0.0 0.0 0.0 0.0 0.0
FCF -159000 107185.0 118439.4 130875.6 144617.5 159802.3 176581.6
PV(FCF) -159000 96563.1 96128.1 95695.1 95264.0 94834.9 94407.7

NPV $ 971,475.53

0 1 2 3 4 5 6
Current Revenue 0 254150.0 280835.8 310323.5 342907.5 378912.8 418698.6
COGS 0 -176800.0 -195364.0 -215877.2 -238544.3 -263591.5 -291268.6
Opr. Prof 0 77350.0 85471.8 94446.3 104363.1 115321.3 127430.0
CapX 0 0.0 0.0 0.0 0.0 0.0 0.0
FCF 0 77350.0 85471.8 94446.3 104363.1 115321.3 127430.0
PV(FCF) 0 69684.7 69370.8 69058.3 68747.2 68437.6 68129.3

NPV $ 815,807.08

$ 155,668.45 -difference of NPVs

ar Golf (SBG) is a manufacturer of top quality golf clubs with a specialty of putters. Currently, each
ey sell brings in $230 of revenue at a cost of $160. This past year, they sold 1,000 putters and they
his number to grow each year by 10.5% until this model becomes obsolete after 12 more years. The
at the SBG factory recently brought to your attention a new technology that could lower the cost
ction. This technology requires an upfront fixed investment of $159,000 and has the capacity to
all the putters you want to sell per year at a unit cost of $133. There is no increased working capital
e to this new technology, and no value of the machine/technology after 12 years. What is the NPV
ng in the new technology? Ignore taxes and assume a discount rate of 11.0%. (Hint: Think
ntally; the difference between the world without and with this new technology! Also, ignoring taxes
big help if you think right. You are strongly encouraged to use a spreadsheet.) (Round off decimals.
g question that is all about the creation of value; incremental value.)

2011.6 2222.8 2456.2 2714.1 2999.1 3314.0

7 8 9 10 11 12
462661.9 511241.5 564921.8 624238.6 689783.6 762210.9
-267539.3 -295630.9 -326672.2 -360972.8 -398874.9 -440756.8
195122.6 215610.5 238249.6 263265.8 290908.8 321454.2
0.0 0.0 0.0 0.0 0.0 0.0
195122.6 215610.5 238249.6 263265.8 290908.8 321454.2
93982.5 93559.1 93137.7 92718.1 92300.5 91884.7

7 8 9 10 11 12
462661.9 511241.5 564921.8 624238.6 689783.6 762210.9
-321851.8 -355646.2 -392989.1 -434252.9 -479849.5 -530233.7
140810.2 155595.2 171932.7 189985.7 209934.2 231977.2
0.0 0.0 0.0 0.0 0.0 0.0
140810.2 155595.2 171932.7 189985.7 209934.2 231977.2
67822.4 67516.9 67212.8 66910.0 66608.6 66308.6
 0.05 discount rate

time Project H Project L

0 -130000 -75000
1 -4000 -9000
2 -4000 -9000
3 -4000 -9000
4 -4000 -9000
5 -4000
6 -4000
7 -4000
NPV $ -153,145.49 $ -106,913.55
PMT $ -26,466.58 $ -30,150.89
costs less
months 0 1 2 3 4 5 6 7 8
cashflow -450 0 0 0 375 0 0 0 0

rate is 6% or 0,06 - do not forget to adjust rate to 12 months

NPV = 274.35 ₽
9 10
0 375
periods (weeks) 0 1 2 3 4 5 6 7
cash flows -1900 506 506 506 506 506 506 506

rate is 10% or 0,1 - remember he is getting cash per week, so rate should be adjusted by 52 w

NPV = 4,590.3 ₽
 8 9 10 11 12 13
506 506 506 506 506 506

o rate should be adjusted by 52 weeks

Cash Flow Period
-1,100,000.0 ₽ 0
220,000.0 ₽ 1
233,200.0 ₽ 2
247,192.0 ₽ 3
262,023.5 ₽ 4
277,744.9 ₽ 5
294,409.6 ₽ 6
312,074.2 ₽ 7
330,798.7 ₽ 8
350,646.6 ₽ 9
371,685.4 ₽ 10
393,986.5 ₽ 11
417,625.7 ₽ 12
442,683.2 ₽ 13
469,244.2 ₽ 14
497,398.9 ₽ 15
527,242.8 ₽ 16
558,877.4 ₽ 17
592,410.0 ₽ 18
627,954.6 ₽ 19
665,631.9 ₽ 20
705,569.8 ₽ 21
747,904.0 ₽ 22

NPV $ 3,181,811.21
investment 520,000 ₽
cash flow 8,000 ₽ per month
duration 25 years
passed 3 years
rate 0.04 monthly compounding

What is the value of business today?

300 - total amount of months

36 - months passed
264 - months remained

1,403,063.15 ₽ - value of business today