Brock Klein

Corporate Finance (ECO 353)

Homework Problem 2
Due 3-11-08

Project Analysis for Sheetbend and Halyard, Inc.

Canvas Tote Bags for US Navy

WACC (discount rate) 12.00%

Machinery (initial investment) $ 1,000,000.00
Plant Refurbishment (initial invest $ 500,000.00
Book Value of Land $ 10,000.00
Sale Value (opportunity cost) $ 600,000.00
Fixed costs $ 300,000.00
Variable costs $ 18.00
Cost Factor 1.04
WC factor 0.1
Tax rate 0.35

Year 1 2
MACRS (Ten year) 10.00% 18.00%
MACRS (Five year) 20.00% 32.00%

Units 100000 100000

Unit Factor 1
Price 30 30
Price Factor 1

Year 0 1 2
Units 100000 100000
Price $ 30.00 $ 30.00
Revenue $ 3,000,000.00 $ 3,000,000.00
Cost $ (1,500,000.00) $ (2,100,000.00) $ (2,184,000.00)
Fixed $ (300,000.00) $ (312,000.00)
Variable $ (1,800,000.00) $ (1,872,000.00)
Depreciation $ (250,000.00) $ (410,000.00)
Plant $ (50,000.00) $ (90,000.00)
Equipment $ (200,000.00) $ (320,000.00)
Income Before Tax $ 650,000.00 $ 406,000.00
Loss Carry Forward $ - $ -
Taxable income $ 650,000.00 $ 406,000.00
Taxes $ (227,500.00) $ (142,100.00)
Net Income After Tax $ 422,500.00 $ 263,900.00

Cash flow from ops $ (1,500,000.00) $ 672,500.00 $ 673,900.00

Initial Cash Flow $ (2,400,000.00)

Machinery and Plant $ (1,500,000.00)
Working Capital $ (300,000.00) $ - $ -
 Opportunity Cost $ (600,000.00)

Terminal Cash flows

Sale Value of Land and Plant
WC Recapture

Total Cash Flows $ (2,400,000.00) $ 672,500.00 $ 673,900.00

PV of Cash Flows $ (2,400,000.00) $ 600,446.43 $ 537,228.95
PV of all operational CF's $ 2,726,674.31

NPV $ 326,674.31
IRR 12.00%
 3 4 5 6 7
14.40% 11.52% 9.22% 7.37% 6.55%
19.20% 11.52% 11.52% 5.76%

100000 100000 100000

30 30 30

3 4 5
100000 100000 100000
$ 30.00 $ 30.00 $ 30.00
$ 3,000,000.00 $ 3,000,000.00 $ 3,000,000.00
$ (2,271,360.00) $ (2,362,214.40) $ (2,456,702.98)
$ (324,480.00) $ (337,459.20) $ (350,957.57) $ 1,624,896.77
$ (1,946,880.00) $ (2,024,755.20) $ (2,105,745.41)
$ (264,000.00) $ (172,800.00) $ (161,300.00) $ 1,258,100.00
$ (72,000.00) $ (57,600.00) $ (46,100.00) $ 184,300.00
$ (192,000.00) $ (115,200.00) $ (115,200.00)
$ 464,640.00 $ 464,985.60 $ 381,997.02
$ - $ - $ -
$ 464,640.00 $ 464,985.60 $ 381,997.02
$ (162,624.00) $ (162,744.96) $ (133,698.96)
$ 302,016.00 $ 302,240.64 $ 248,298.07

$ 566,016.00 $ 475,040.64 $ 409,598.07

$ - $ - $ 300,000.00
 $ 1,148,705.00
$ 848,705.00 Sale Value $ 1,500,000.00
$ 300,000.00

$ 566,016.00 $ 475,040.64 $ 1,558,303.07

$ 402,879.01 $ 301,896.91 $ 884,223.01
 8 9 10 11
6.55% 6.56% 7% 3%
WACC (discount rate) 12.00%
Machinery (initial investment) $ 1,000,000.00
Plant Refurbishment (initial inv $ 500,000.00
Book Value of Land $ 10,000.00
Sale Value (opportunity cost) $ 600,000.00
Fixed costs $ 300,000.00
Variable costs $ 18.00
Cost Factor 1.04
WC factor 0.1
Tax rate 0.35

Year 1 2 3
MACRS (Ten year) 10.00% 18.00% 14.40%
MACRS (Five year) 20.00% 32.00% 19.20%

Units 100000 100000 100000

Unit Factor 1
Price 30 30 30
Price Factor 1

Year 0 1 2 3
Units 100000 100000 100000
Price $ 30.00 $ 30.00 $ 30.00
Revenue $ 3,000,000.00 $ 3,000,000.00 $ 3,000,000.00
Cost $ (1,500,000.00) $ (2,100,000.00) $ (2,184,000.00) $ (2,271,360.00)
Fixed $ (300,000.00) $ (312,000.00) $ (324,480.00)
Variable $ (1,800,000.00) $ (1,872,000.00) $ (1,946,880.00)
Depreciation $ (250,000.00) $ (410,000.00) $ (264,000.00)
Plant $ (50,000.00) $ (90,000.00) $ (72,000.00)
Equipment $ (200,000.00) $ (320,000.00) $ (192,000.00)
Income Before Tax $ 650,000.00 $ 406,000.00 $ 464,640.00
Loss Carry Forward $ (1,500,000.00) $ (850,000.00) $ (444,000.00)
Taxable income $ - $ - $ 20,640.00
Taxes $ - $ - $ (7,224.00)
Net Income After Tax $ - $ - $ 13,416.00

Cash flow from ops $ (1,500,000.00) $ 250,000.00 $ 410,000.00 $ 277,416.00

Initial Cash Flow $ (2,400,000.00)

Machinery and Plant $ (1,500,000.00)
Working Capital $ (300,000.00) $ - $ - $ -
 Opportunity Cost $ (600,000.00)

Terminal Cash flows

Sale Value of Land and Plant
WC Recapture

Total Cash Flows $ (2,400,000.00) $ 250,000.00 $ 410,000.00 $ 277,416.00

PV of Cash Flows $ (2,400,000.00) $ 223,214.29 $ 326,849.49 $ 197,459.23
PV of all operational CF's $ 1,933,642.93

NPV $ (466,357.07)
IRR 12.00%
 4 5 6 7 8 9 10
11.52% 9.22% 7.37% 6.55% 6.55% 6.56% 7%
11.52% 11.52% 5.76%

100000 100000

30 30

4 5
100000 100000
$ 30.00 $ 30.00
$ 3,000,000.00 $ 3,000,000.00
$(2,362,214.40) $ (2,456,702.98)
$ (337,459.20) $ (350,957.57) $ 1,624,896.77
$(2,024,755.20) $ (2,105,745.41)
$ (172,800.00) $ (161,300.00) $ 1,258,100.00
$ (57,600.00) $ (46,100.00) $ 184,300.00
$ (115,200.00) $ (115,200.00)
$ 464,985.60 $ 381,997.02
$ - $ -
$ 464,985.60 $ 381,997.02
$ (162,744.96) $ (133,698.96)
$ 302,240.64 $ 248,298.07

$ 475,040.64 $ 409,598.07

$ - $ 300,000.00
 $ 1,148,705.00
$ 848,705.00 Sale Value $ 1,500,000.00
$ 300,000.00

$ 475,040.64 $ 1,558,303.07
$ 301,896.91 $ 884,223.01
 11
3%
IRR Analysis (Using Goal Seek) - No Loss Carry Forward

WACC 12%
IRR 16.75%
Machinery (initial investment) $ 1,000,000.00
Plant Refurbishment (initial inves $ 500,000.00
Book Value of Land $ 10,000.00
Sale Value (opportunity cost) $ 600,000.00
Fixed costs $ 300,000.00
Variable costs $ 18.00
Cost Factor 1.04
WC factor 0.1
Tax rate 0.35

Year 1 2 3
MACRS (Ten year) 10.00% 18.00% 14.40%
MACRS (Five year) 20.00% 32.00% 19.20%

Units 100000 100000 100000

Unit Factor 1
Price 30 30 30
Price Factor 1

Year 0 1 2 3
Units 100000 100000 100000
Price $ 30.00 $ 30.00 $ 30.00
Revenue $ 3,000,000.00 $ 3,000,000.00 $ 3,000,000.00
Cost $ (1,500,000.00) $ (2,100,000.00) $ (2,184,000.00) $ (2,271,360.00)
Fixed $ (300,000.00) $ (312,000.00) $ (324,480.00)
Variable $ (1,800,000.00) $ (1,872,000.00) $ (1,946,880.00)
Depreciation $ (250,000.00) $ (410,000.00) $ (264,000.00)
Plant $ (50,000.00) $ (90,000.00) $ (72,000.00)
Equipment $ (200,000.00) $ (320,000.00) $ (192,000.00)
Income Before Tax $ 650,000.00 $ 406,000.00 $ 464,640.00
Loss Carry Forward $ - $ - $ -
Taxable income $ 650,000.00 $ 406,000.00 $ 464,640.00
Taxes $ (227,500.00) $ (142,100.00) $ (162,624.00)
Net Income After Tax $ 422,500.00 $ 263,900.00 $ 302,016.00

Cash flow from ops $ (1,500,000.00) $ 672,500.00 $ 673,900.00 $ 566,016.00

Initial Cash Flow $ (2,400,000.00)

Machinery and Plant $ (1,500,000.00)
Working Capital $ (300,000.00) $ - $ - $ -
 Opportunity Cost $ (600,000.00)

Terminal Cash flows

Sale Value of Land and Plant
WC Recapture

Total Cash Flows $ (2,400,000.00) $ 672,500.00 $ 673,900.00 $ 566,016.00

PV of Cash Flows $ (2,400,000.00) $ 576,002.40 $ 494,378.37 $ 355,651.56
PV of all operational CF's $ 2,400,000.00

NPV $ 0.00
IRR 16.75%
 4 5 6 7 8 9 10
11.52% 9.22% 7.37% 6.55% 6.55% 6.56% 7%
11.52% 11.52% 5.76%

100000 100000

30 30

4 5
100000 100000
$ 30.00 $ 30.00
$ 3,000,000.00 $ 3,000,000.00
$ (2,362,214.40) $ (2,456,702.98)
$ (337,459.20) $ (350,957.57) $ 1,624,896.77
$ (2,024,755.20) $ (2,105,745.41)
$ (172,800.00) $ (161,300.00) $ 1,258,100.00
$ (57,600.00) $ (46,100.00) $ 184,300.00
$ (115,200.00) $ (115,200.00)
$ 464,985.60 $ 381,997.02
$ - $ -
$ 464,985.60 $ 381,997.02
$ (162,744.96) $ (133,698.96)
$ 302,240.64 $ 248,298.07

$ 475,040.64 $ 409,598.07

$ - $ 300,000.00
 $ 1,148,705.00
$ 848,705.00 Sale Value $ 1,500,000.00
$ 300,000.00

$ 475,040.64 $ 1,558,303.07
$ 255,657.64 $ 718,310.04
 11
3%
IRR Analysis with loss carry forward - (Goal Seek)

WACC 12.00%
IRR 5.70%
Machinery (initial investment) $ 1,000,000.00
Plant Refurbishment (initial inves $ 500,000.00
Book Value of Land $ 10,000.00
Sale Value (opportunity cost) $ 600,000.00
Fixed costs $ 300,000.00
Variable costs $ 18.00
Cost Factor 1.04
WC factor 0.1
Tax rate 0.35

Year 1 2 3
MACRS (Ten year) 10.00% 18.00% 14.40%
MACRS (Five year) 20.00% 32.00% 19.20%

Units 100000 100000 100000

Unit Factor 1
Price 30 30 30
Price Factor 1

Year 0 1 2 3
Units 100000 100000 100000
Price $ 30.00 $ 30.00 $ 30.00
Revenue $ 3,000,000.00 $ 3,000,000.00 $ 3,000,000.00
Cost $ (1,500,000.00) $ (2,100,000.00) $(2,184,000.00) $ (2,271,360.00)
Fixed $ (300,000.00) $ (312,000.00) $ (324,480.00)
Variable $ (1,800,000.00) $(1,872,000.00) $ (1,946,880.00)
Depreciation $ (250,000.00) $ (410,000.00) $ (264,000.00)
Plant $ (50,000.00) $ (90,000.00) $ (72,000.00)
Equipment $ (200,000.00) $ (320,000.00) $ (192,000.00)
Income Before Tax $ 650,000.00 $ 406,000.00 $ 464,640.00
Loss Carry Forward $ (1,500,000.00) $ (850,000.00) $ (444,000.00)
Taxable income $ - $ - $ 20,640.00
Taxes $ - $ - $ (7,224.00)
Net Income After Tax $ - $ - $ 13,416.00

Cash flow from ops $ (1,500,000.00) $ 250,000.00 $ 410,000.00 $ 277,416.00

Initial Cash Flow $ (2,400,000.00)

Machinery and Plant $ (1,500,000.00)
Working Capital $ (300,000.00) $ - $ - $ -
 Opportunity Cost $ (600,000.00)

Terminal Cash flows

Sale Value of Land and Plant
WC Recapture

Total Cash Flows $ (2,400,000.00) $ 250,000.00 $ 410,000.00 $ 277,416.00

PV of Cash Flows $ (2,400,000.00) $ 236,517.30 $ 366,969.23 $ 234,909.29
PV of all operational CF's $ 2,400,000.00

NPV $ (0.00)
IRR 5.70%
 4 5 6 7 8 9 10
11.52% 9.22% 7.37% 6.55% 6.55% 6.56% 7%
11.52% 11.52% 5.76%

100000 100000

30 30

4 5
100000 100000
$ 30.00 $ 30.00
$ 3,000,000.00 $ 3,000,000.00
$(2,362,214.40) $(2,456,702.98)
$ (337,459.20) $ (350,957.57) $ 1,624,896.77
$(2,024,755.20) $(2,105,745.41)
$ (172,800.00) $ (161,300.00) $ 1,258,100.00
$ (57,600.00) $ (46,100.00) $ 184,300.00
$ (115,200.00) $ (115,200.00)
$ 464,985.60 $ 381,997.02
$ - $ -
$ 464,985.60 $ 381,997.02
$ (162,744.96) $ (133,698.96)
$ 302,240.64 $ 248,298.07

$ 475,040.64 $ 409,598.07

$ - $ 300,000.00
 $ 1,148,705.00
$ 848,705.00 Sale Value $ 1,500,000.00
$ 300,000.00

$ 475,040.64 $ 1,558,303.07
$ 380,559.31 $ 1,181,044.88
 11
3%