Answer:
Explanation:
The calculation can be done using sensitivity analysis
The sensitivity analysis is done as follows:
Scenario NPV Deviation in NPV from orignial scenario % depletion
Original 6140513
Unit sale decreases by 10% 5286234 -854279 13.91%
Price per unit decreases by 10% 2894254 -3246259 52.87%
Variable cost per unit increases 10% 5286234 -854279 13.91%
Cash fixed cost per year increases by 10% 6062851 -77662 1.26%
Calculation of original NPV
Sales (350000 * 22) 7700000
Less: Variable cost (350000 * 11) -3850000
Less: Fixed cost -350000
Less: Depreciation [(2000000 - 200000) / 4] -450000
Profit before tax 3050000
Less: Tax at 30% -915000
Profit after tax 2135000
Add: Depreciation 450000
Cash flow after tax 2585000
0 1 2 3 4
Initial investment -2000000
Working capital -600000
Cash flow after tax 2585000 2585000 2585000 2585000
Working capital released 600000
Residual value 200000
Net cash flows -2600000 2585000 2585000 2585000 3385000
PVF at 10% 1 0.9091 0.8264 0.7513 0.6830
Present value -2600000 2350000 2136364 1942149 2312001
NPV 6140513
Calculation of NPV when unit sales decrease by 10%
Sales (315000 * 22) 6930000
Less: Variable cost (315000 * 11) -3465000
Less: Fixed cost -350000
Less: Depreciation [(2000000 - 200000) / 4] -450000
Profit before tax 2665000
Less: Tax at 30% -799500
Profit after tax 1865500
Add: Depreciation 450000
Cash flow after tax 2315500
0 1 2 3 4
Initial investment -2000000
Working capital -600000
Cash flow after tax 2315500 2315500 2315500 2315500
Working capital released 600000
Residual value 200000
Net cash flows -2600000 2315500 2315500 2315500 3115500
PVF at 10% 1 0.9091 0.8264 0.7513 0.6830
Present value -2600000 2105000 1913636 1739669 2127928
NPV 5286234
Calculation of NPV when price per unit decrease by 10%
Sales (350000 * 19.8) 6237000
Less: Variable cost (350000 * 11) -3850000
Less: Fixed cost -350000
Less: Depreciation [(2000000 - 200000) / 4] -450000
Profit before tax 1587000
Less: Tax at 30% -476100
Profit after tax 1110900
Add: Depreciation 450000
Cash flow after tax 1560900
0 1 2 3 4
Initial investment -2000000
Working capital -600000
Cash flow after tax 1560900 1560900 1560900 1560900
Working capital released 600000
Residual value 200000
Net cash flows -2600000 1560900 1560900 1560900 2360900
PVF at 10% 1 0.9091 0.8264 0.7513 0.6830
Present value -2600000 1419000 1290000 1172727 1612526
NPV 2894254
Calculation of NPV when variable cost per unit increases 10%
Sales (350000 * 22) 7700000
Less: Variable cost (350000 * 12.1) -4235000
Less: Fixed cost -350000
Less: Depreciation [(2000000 - 200000) / 4] -450000
Profit before tax 2665000
Less: Tax at 30% -799500
Profit after tax 1865500
Add: Depreciation 450000
Cash flow after tax 2315500
0 1 2 3 4
Initial investment -2000000
Working capital -600000
Cash flow after tax 2315500 2315500 2315500 2315500
Working capital released 600000
Residual value 200000
Net cash flows -2600000 2315500 2315500 2315500 3115500
PVF at 10% 1 0.9091 0.8264 0.7513 0.6830
Present value -2600000 2105000 1913636 1739669 2127928
NPV 5286234
Calculation of NPV when cash fixed cost per year increases by 10%
Sales (350000 * 22) 7700000
Less: Variable cost (350000 * 11) -3850000
Less: Fixed cost -385000
Less: Depreciation [(2000000 - 200000) / 4] -450000
Profit before tax 3015000
Less: Tax 30% -904500
Profit after tax 2110500
Add: Depreciation 450000
Cash flow after tax 2560500
0 1 2 3 4
Initial investment -2000000
Working capital -600000
Cash flow after tax 2560500 2560500 2560500 2560500
Working capital released 600000
Residual value 200000
Net cash flows -2600000 2560500 2560500 2560500 3360500
PVF at 10% 1 0.9091 0.8264 0.7513 0.6830
Present value -2600000 2327727 2116116 1923742 2295267
NPV 6062851
