You are on page 1of 1

Super Project

Group 10-Section A
S.No. Period 1 2 3 4 5 6 7 8 9 10
1 Net Sales 2112 2304 2496 2668 2880 2880 3072 3072 3264 3264
2 COGS 1100 1200 1300 1400 1500 1500 1600 1600 1700 1700
3 GP 1012 1104 1196 1268 1380 1380 1472 1472 1564 1564
4 Advertising 1100 1050 1000 900 700 700 730 730 750 750
5 Startup cost 15 - - - - - - - - -
6 Overhead - - - - 90 90 90 90 90 90
7 Depreciation 19 18 17 16 15 13 12 11 10 9
8 Sales erosion of Jello 180 200 210 220 230 230 240 240 250 250
9 PBT -302 -164 -31 132 345 347 400 401 464 465
10 Tax (@52.3%) -157.95 -85.77 -16.21 69.04 180.44 181.48 209.20 209.72 242.67 243.20
11 PAT -144.05 -78.23 -14.79 62.96 164.57 165.52 190.80 191.28 221.33 221.81
12 Depreciation 19.00 18.00 17.00 16.00 15.00 13.00 12.00 11.00 10.00 9.00
13 Operating Cash Flow -125.05 -60.23 2.21 78.96 179.57 178.52 202.80 202.28 231.33 230.81
14 Changes in NWC -329 55 3 7 23 -1 -13 0 -12 0
15 Recovery of NWC - - - - - - - - - 267
16 Investment credit -1 -1 -1 -1 -1 -1 -1 -1 -1 -1
-
17 Total Cash Flows 455.054 -6.228 4.213 84.964 201.565 176.519 188.800 201.277 218.328 496.805

Period 0 1 2 3 4 5 6 7 8 9 10
Cash Flows 200 455.054 -6.228 4.213 84.964 201.565 176.519 188.800 201.277 218.328 496.805
PV of Cash Flows @
10% 200 413.685 5.14711 3.165289 58.03156 125.156 99.64037 96.88425 93.89721 92.59238 191.5398
NPV 142.0743401

(Note: All figures are in thousands)

As the NPV is positive, we should accept the project


Assumptions:

1. We have not included Test market expenses, as they are sunk costs which the company has already incurred
regardless of whether it chooses to invest in the project or not. Therefore, such costs are irrelevant while calculating
incremental cash flows.
2. We have included the side effect caused by the project. As Super will eat into the market share of Jello, a portion of
its sale will erode. Therefore, the cash flows of Super Project are coming at the expense of Jello’s sales. Therefore,
we will include lost profits as expenses.
3. We are not including the cost of excess agglomerator capacity, which represent the opportunity costs for the Jello
division. As this cost is also Sunk, it has been accounted for and is not particular to this project.
4. We will include overhead expenses which can be attributed to the Super Project. As the overhead expenses are not
conclusively defined, we have assumed that the difference between profits of Facilities used approach and Fully
allocated approach.
5. We have assumed that the networking capital will be recovered at the end of the project
6. We have assumed the required rate of return used in order to discount to be 10%. Using CAPM, we arrived at the
return on equity of around 8.1% but as there is no conclusive data available to calcite the cost of debt. We have
made and educated assumption that the WACC will be around 10%.
7. We have included the SGA expenses in our calculations

You might also like