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Using the information presented below on the proposed ABC Investment Project build a
spreadsheet model to answer the questions given in Section 3 below.
Basic Assumptions:
a) All prices are in constant market prices and the initial project investment is
completed within two years.
b) The operating life of the project is 10 years, starting in Year 3.
c) Vehicles and other assets need replacing every 5 years.
d) Make your own assumption for the residual value.
1. Investment Costs
3. Operating Costs
a) Assume that the variable material cost of each unit produced is $40.00. Variable
costs relate to the volume of sales not production
b) Assume that the variable labour cost of each unit produced is $20.00.
c) Assume that Fixed Costs per Annum are $30,000
4. Working Capital
a) Assume that the quantity of Stocks of Finished Goods (Units) held amounts to
12.5% of the quantity produced in a year. Stocks of Finished Goods should be
valued at the Unit Variable Cost rate.
b) Assume that one months stock of raw materials are required (1/12)
c) Assume that Accounts Receivable is equivalent to 1 month of the amount sold in
a year.
d) Assume that Accounts Payable is valued at 1 month of total Operating Costs.
5. Question
Using these schedules calculate the NPV and IRR for the project using an 8% discount rate.