CF Assignment 1

Submission by:

GROUP 9
SL NO NAME ROLL NO
1 AMITESH GUPTA PGP/24/011
2 AYUSH PARAKH PGP/24/023
3 ANISH DAS PGP/24/012
4 K VIGNESH PGP/24/037
5 SATVIK CHANDNA PGP/24/052
6 MEERA SIMON C PhD/14/16/Q
Current Situation - Shoe 1
Annual Sales 14800 pairs
Average Price 59 a pair

Launching of Shoe 2
Price 39 a pair
Annual Sales 6000 pairs
Loss of Shoe 1 sales 3500 pairs

Additional Revenue from launching Shoe 2

Revenue from sale of Shoe 2 234,000

Less: Revue Forgone from Shoe 1
(Opportunity Cost) 206,500
Additional Revenue from addition
of shoe 2 27,500
 Sales Sales after addition Cost per unit
Class A 1100 850 140000
Class B 2200 2000 59500
Mide Range 1500 42900

Erosion Cost 250 35000000

200 11900000
46,900,000.00
Sales $760,000 Operating Cash Flow $118,000
Profit Margin 5%
Annual Depreciation Expense $80,000
4.Thornley machines

initial cost 618000

opearting c 265000
depreciation SLM to 0
tax 34%
discount ra 14%
salvage 60000
inventory 23000

yr dep BV op EBITDA EBIT PAT (+)dep inv salvage

0 -618000 -23000
1 206000 -412000 265000 265000 59000 38940 244940
2 206000 -206000 265000 265000 59000 38940 244940
3 206000 0 265000 265000 59000 38940 244940 23000 60000
tax CF
-641000
244940
244940
-20400 307540
NPV ₹ -30,086.23
Cost Savings 12000
Investment 42000
Life 5 years
SLM to zero
Depreciation Schedule
Years 0 1 2 3 4
Depn 8400 8400 8400 8400
EOP BV 42000 33600 25200 16800 8400

Proforma of Income Statement

Cost Savings 12000 12000 12000 12000
Depn 8400 8400 8400 8400
EBIT 3600 3600 3600 3600
 5
8400
0

12000
8400
3600
Initial cost 850,000
Operating cost -10,000
Tenure 3
Rate of return 15%
Year PVAF
1 0.87
2 1.63
3 2.28

Year 0 1 2 3
Annual cost -850,000 -10,000 -10,000 -10,000

Cash flows -850,000 -10,000 -10,000 -10,000

NPV -$872,832
EAC -$382,280
 Requirement of working capital for Kay's Nautique

S No Particulars Rs.
1 Increase in Inventory 128,000
2 Increase in Accounts payable -45,000
3 Increase in Accounts receivable 8,000
Net Working Capital Requirement 91,000
(1+2+3)
Rate of Return 15%
tax Rate 35%
Asset 325,000 81250
Short Term Payable 95000
Year 5
Sunk Cost 81250

0 1 2 3 4 5
Sales 554000 554000 554000 554000 554000
Cost 430000 430000 430000 430000 430000
Depriciation 48750 48750 48750 48750 48750
EBIT 75250 75250 75250 75250 75250
Tax 26337.5 26337.5 26337.5 26337.5 26337.5
PAT 48912.5 48912.5 48912.5 48912.5 48912.5

Operarting Cash Flow 97662.5 97662.5 97662.5 97662.5 97662.5

-325000
-95000
81250
-420000 97662.5 97662.5 97662.5 97662.5 178912.5
NPV -52224.54
Fixed Asset $164,800 Year 0
Depreciation $41,200 EOY BV $164,800
Useful Life 4
Salvage Value $37,500 Proforma Income Statement
Working Capital $42,400 Year 0
Tax 35% Sales
Discount Rate 13% COGS
Sales $195,000 Operating Profit
Costs $117,500 Depreciation
EBIT
PAT

Working Capital
Year 0
Opening
Closing $42,400
Change in WC -$42,400

Proforma Operating Cash Flow

PAT $0
Depreciation $0
Net WC -$42,400
Operating cash flow -$42,400

Investment Cash flow

Cost of equipment -$164,800
Salvage Value
SVT

Free Cash Flow -$207,200

NPV $26,485
IRR 18.34%
 1 2 3 4
$123,600 $82,400 $41,200 $0

1 2 3 4
$195,000 $195,000 $195,000 $195,000
$117,500 $117,500 $117,500 $117,500
$77,500 $77,500 $77,500 $77,500
$41,200 $41,200 $41,200 $41,200
$36,300 $36,300 $36,300 $36,300
$23,595 $23,595 $23,595 $23,595

1 2 3 4
$0 $0 $0 $42,400
$0 $0 $0 $0
$0 $0 $0 $42,400

$23,595 $23,595 $23,595 $23,595

$41,200 $41,200 $41,200 $41,200
$0 $0 $0 $42,400
$64,795 $64,795 $64,795 $107,195

$37,500
-$13,125

$64,795 $64,795 $64,795 $131,570

10.Lew

nominal rate 16.67%

inflation 3.26%

real rate 12.99%

 Assumption- No tax rate as it is not given.
Fixed asset 156000
NWC 32000 at beginning Year 0 1 2 3
Project life 4 NWC -32000
Salvage va 68400 Fixed asset -156000
Return 16% Total Investment -188000
Salvage value
PV of Salvage value 37776.71
PV of Operating cash -150223

Cash flow needed each year 53685.96 < Cash flow generate 53685.96 53685.96 53685.96
PV of Cash flow 150223 (Goal Seek)
 4

68400

53685.96
Discount 18%
Tax 35% Year
Annual cost 198,200 Investment
Fixed Asset 318,000 Annual cost
Operating cash flow 92,400
Tenure 6
Year
Depreciation
EOP
D*t

Revenue
Profit
EBIT
PAT
Operating cash flow
 0 1 2 3 4 5
-318,000
198,200 198,200 198,200 198,200 198,200

0 1 2 3 4 5
53000 53000 53000 53000 53000
318,000 265,000 212,000 159,000 106,000 53,000
18550 18550 18550 18550 18550

311815.39 311815.39 311815.39 311815.39 311815.39

113,615 113,615 113,615 113,615 113,615
60,615 60,615 60,615 60,615 60,615
39400.0035 39400.0035 39400.0035 39400.0035 39400.0035
92400.0035 92400.0035 92400.0035 92400.0035 92400.0035
 6

198,200

6
53000
0
18550

311815.39
113,615
60,615
39400.0035
92400.0035
 Cost of the project 218000
Duration 7 years
Discounted Payaback period 7 years

As the discounting rate is 0%, the discounted payback period is same as payback period
The duration and the payback period is same, hence the yearly cash flow will be

= 218000/7
Cash Flow in each of the seven years 31142.86
Cost 175000
Discount Rate 9%
Payback Period 3

Year 0 1 2 3 4
CF -175000 48500 85000 40000 40000
Discounted CF 44495.41 71542.8 30887.3392 28337.01
Cumulative Payment 48500 133500 173500 213500
Shortafll 126500 41500 1500 -38500
Payback Period 3.008571

Shortfall -175000 -126500 -41500 -1500 38500

Payback Period 3.0375
Project A
Initial Cost -75000
Annual Cash Flows 33000 Yr 1
33000 Yr 2
33000 Yr 3 Year 0 1 2
Project A -75000 33000 33000
Project B -60000 25000 30000
Project B -15000 8000 3000
Initial Cost -60000
Annual Cash Flows 25000 Yr 1 IRR 12.89%
30000 Yr 2
25000 Yr 3 If the required rate is higher than the crossover rate then Project
 3 NPV @ 15%
33000 ₹ 346.43
25000 ₹ 861.35
8000

an the crossover rate then Project B should be selected.

16.Kali ski resort

Type Probability Expected P*E Dev from Squared d P*Squared dev

boom 0.3 0.3 0.09 0.174 0.030276 0.009083
recession 0.15 -0.2 -0.03 -0.326 0.106276 0.015941
normal 0.55 0.12 0.066 -0.006 3.6E-05 1.98E-05
Total 0.025044 (Variance)
Expected Return 12.60%
SD 15.83%
Expected return of portfolio 11.60%
Expected return of A 17.80%
Expected return of B 8.40%
Weight of A 0.340426
Weight of B 0.659574

Expected Return = Expected Return of A*weight of A + Expected return of B*weight of B

11.6%
Probability of Boom 20%
Probability of Normal 70%
Preobability of recession 10%
Stock A Stock B
In boom 18% 9%
Normal 11% 7%
Recession -10% 4%

Expected Return Stock A 10.30%

Stock B 7.10%
Stock C 8.80%
Expected return on portfolio 8.25%
Stock C
6%
9%
13%
 Securities
C D
Proportion (W) 38% 62%
Expected Return (R ) 8.47% 13.45%
Standard Deviation (SD) 7.12% 16.22%
Coeffecient of Correlation 0.89

Portfolio Return WcRc+WdRd

(0.38*8.47%)+(0.62*13.45%)
Portfolio Return 11.56%

Portfolio Variance

((0.38^2*(7.12%^2))+((0.62^2*(16.22%^2))+(2*0.38*0.62*7.12%*16.22%*0.89)
Portfolio Variance 1.57%
%*16.22%*0.89)
Situation Probability Stock S Stock T Stock S Deviation (Dev.S)
Recession 25% 2% 9% -6%
Normal 65% 9% 6% 1%
Boom 10% 12% 4% 4%

Stock Amount Weightage

S 4500 0.6
T 3000 0.4

Expected return 7.55% 6.55%

Variance 0.11% 0.02%
Covariance -0.05%
Portfolio Variance 0.0435%
Portfolio Standard Deviation 2.09%
Stock T Deviation (Dev.T) (Dev.S)^2 (Dev.T)^2 Co-movement (Dev.S * Dev.T)
2% 0.31% 0.06% -0.14%
-1% 0.02% 0.00% -0.01%
-3% 0.20% 0.07% -0.11%
 Asset A 2.50% 2% 4% 3.20%
10 Monthly Returns
Market 1.75% 1.40% 2.75% 1.80%

1.27% 0.77% 2.77% 1.97%

0.78% 0.43% 1.78% 0.83%

0.00010 0.00003 0.00049 0.00016

Covariance of Asset
and Market 0.000200194

Variance of Market 0.000131014

Beta 1.52803986
 1.70% 0.70% -1.40% -1.35% 0.20% 0.75%
1.20% 0.90% -0.85% -0.90% 0.50% 1.20%

0.47% -0.53% -2.63% -2.58% -1.03% -0.48%

0.23% -0.07% -1.83% -1.88% -0.48% 0.23%

0.00001 0.00000 0.00048 0.00048 0.00005 -0.00001

22.CAPM

Beta 1.5
rf 6%
MRP 7%
cost of capital 16.50%
drop in benchmark rate by 100bp 15.500%
increase in risk aversion 150bp
Increase by 1.5*1.5% 17.7500%
Initial cost of Fixed Assets 16000000
Reduction in Current Op Cost 5000000 Year 0 1
Ending Book Vaue 1000000 Depriciation 5000000
Depriciation 5000000 Ending Asset Va 16000000 11000000
Salvage Value(sale) 3000000
NWC investment 1000000
Discount Rate 10% Operating Cash Flow
Tax 25% Increase in Operating Profits 5000000
Depriciation 5000000
EBIT 0
PAT 0
Add: Delta NWC -1000000
Add: Depriciation 5000000
Op CF -1000000 5000000

Investing Cash Flow

Initial Investme -16000000
Salvage Value
Salvage Value Tax Gain
Net Investing C -16000000 0

Free Cash Flow -17000000 5000000

NPV -1936138.2419

So, I won't accept the project.

 2 3
5000000 5000000
6000000 1000000

5000000 5000000
5000000 5000000
0 0
0 0
1000000
5000000 5000000
5000000 6000000

3000000
-500000
0 2500000

5000000 8500000
German Made Year 0 1 2
Rate 15% Dep $2,500,000,000 $2,500,000,000
EOP $5,000,000,000 $2,500,000,000 $0

Proforma Cash Flow

Operating Cash Flow -$1,500,000,000 -$2,000,000,000
Investment -$5,000,000,000

Cash Flow -$5,000,000,000 -$1,500,000,000 -$2,000,000,000

NPV -$7,816,635,161
EV -$4,808,139,535

Japanese Made Year 0 1 2

Dep $2,333,333,333 $2,333,333,333
EOP BV $7,000,000,000 $4,666,666,667 $2,333,333,333

Proforma Cash Flow

Operating cost -$1,000,000,000 -$1,500,000,000
Operating cost after tax -$850,000,000 -$1,275,000,000
D*T $350,000,000 $350,000,000
Operating Cash Flow -$500,000,000 -$925,000,000
Investment -$7,000,000,000

Final Cash Flow -$7,000,000,000 -$500,000,000 -$925,000,000

NPV -$9,021,862,415
EV -$3,951,367,891

The negative sign in EAC indicates that it is a cost and not a benefit, based on the values
we understand that EAC of Japanese made machine is lower than the German made
counterpart, hence LUMA should select Japanese made machine.
 Year PVAF
1 0.869565217391
2 1.625708884688
3 2.28322511712

3
$2,333,333,333
$0

-$2,000,000,000
-$1,700,000,000
$350,000,000
-$1,350,000,000

-$1,350,000,000
 10%
Year 0 1 2
Cash Flows -60 32 39
Discounting factor 1 0.909091 0.826446
Present Value -60 29.09091 32.2314

NPV 1.322314
Inflows 61.32231
Outflows 60
Profitability index 1.022039

Criteria for accepting the project

1 NPV Positive Yes, positive

2 PI>1.1 No, lesser than 1.1

Hence the project shall not be accepted

Sharpe ratio 0.8
expected return 16%
risk free rate 6.50%

sharpe ratio=( Return-risk free

return)/standard deviation
standard deviation/Y= 11.87500%
Expected Dividend ₹ 11.00
Beta 2.5

CAPM
Equity Rate 24 %

Intrinsic Value ₹ 61.11

And Current Share P ₹ 50.00 Stock’s current price in the market is
Undervalued
28.CAPM

Stock Rate CAPM value

Alpha 18% 19% overvalued
Beta 15% 13%
Gamma 12% 14% overvalued

if Rate < CAPM ,it means that based on expected returns you will have higher value for a series of cash flows.Hence its overval
cash flows.Hence its overvalued.
Investment 135
Life 4 Year 0 1 2 3
Depreciation 10 SLD No of Patients 1000 2500 5000
Revenue per patient 0.015
Cost per patient 0.01 Year 0 1 2 3
Debt financing 50 Depreciation 31.25 31.25 31.25
Real interest rate 15% EOP BV 135 103.75 72.5 41.25
Inflation rate 4%
WACC 18% Proforma income statement
Tax (assumption) 0% Year 0 1 2 3
Revenue 5 12.5 25
1000000 Depreciation 31.25 31.25 31.25
Interest 7.5 7.5 7.5
Debt weight 0.37 PAT -33.75 -26.25 -13.75
Equity weight 0.63
Equity rate 19.76% Proforma cash flow
PAT -33.75 -26.25 -13.75
Depreciation 31.25 31.25 31.25
Operating cash flow -2.5 5 17.5

ICF
Investment -135
Salvage Value

Free Cash Fl -135 -2.5 5 17.5

NPV -104.87

So , the hospital shouldn't adopt the technology.

 4
10000

4
31.25
10

4
50
31.25
7.5
11.25

11.25
31.25
42.5

42.5
 Tax rate 20% Discount 15%
250mm blast hole drills
SBSH Komatsu
Purchase price 10 15
Tenure 10 15
Maintainance 0.5 0.3
Salvage value 0 2

SBSH Year 0 1 2
Depreciation 1 1
EOP BV 10 9 8
Depreciation Tax Shield 0.2 0.2
Investment in Equipment -10

Maintainance cost 0.5 0.5

After tax MC 0.4 0.4
Cash flow -10 -0.2 -0.2
NPV -$11.00
NPV if replaced -$11.07

Komatsu Year 0 1 2
Depreciation 1 1
Salvage value
Salvage value tax
EOP BV 15 14 13
Depreciation Tax Shield 0.2 0.2
Investment in Equip -15

Maintainance cost 0.3 0.3

After tax MC 0.24 0.24
Cash flow -15 -0.04 -0.04
NPV -$15.04
NPV if replaced -$16.89

No of years PVAF
0 0
1 0.87
2 1.63
3 2.28
4 2.85
5 3.35
6 3.78
7 4.16
8 4.49
9 4.77
10 5.02
11 5.23
12 5.42
13 5.58
14 5.72
15 5.85
 3 4 5 6 7 8
1 1 1 1 1 1
7 6 5 4 3 2
0.2 0.2 0.2 0.2 0.2 0.2

0.5 0.5 0.5 0.5 0.5 0.5

0.4 0.4 0.4 0.4 0.4 0.4
-0.2 -0.2 -0.2 -0.2 -0.2 -0.2

3 4 5 6 7 8
1 1 1 1 1 1

12 11 10 9 8 7
0.2 0.2 0.2 0.2 0.2 0.2

0.3 0.3 0.3 0.3 0.3 0.3

0.24 0.24 0.24 0.24 0.24 0.24
-0.04 -0.04 -0.04 -0.04 -0.04 -0.04

EAC NPV Residual EAC

SBSH -$11.00 10 -$2.19
Komatsu -$15.04 15 -$2.57
On comparing EAC values of SBSH and Komatsu, the cost of SBSH is lower than
Komatsu hence, choosing SBSH would be optimal.
 9 10
1 1
1 0
0.2 0.2

0.5 0.5
0.4 0.4
-0.2 -0.2

9 10 11 12 13 14
1 1 1 1 1 1

6 5 4 3 2 1
0.2 0.2 0.2 0.2 0.2 0.2

0.3 0.3 0.3 0.3 0.3 0.3

0.24 0.24 0.24 0.24 0.24 0.24
-0.04 -0.04 -0.04 -0.04 -0.04 -0.04
 15
1
2
-0.4
0
0.2

0.3
0.24
1.56