1/1/2012

Chapter 11 Mini Case

Cash Flow Estimation
Situation

Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis
is being conducted by Sidney Johnson, a recently graduated MBA. The production line would be set up in unused
space in Shrieves' main plant. The machinery’s invoice price would be approximately $200,000, another $10,000 in
shipping charges would be required, and it would cost an additional $30,000 to install the equipment. The
machinery has an economic life of 4 years, and Shrieves has obtained a special tax ruling that places the equipment
in the MACRS 3-year class. The machinery is expected to have a salvage value of $25,000 after 4 years of use.

The new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per
unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and
cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm’s net
working capital would have to increase by an amount equal to 12% of sales revenues. The firm’s tax rate is 40%,
and its overall weighted average cost of capital is 10%.

a. Define “incremental cash flow.” Answer: See Chapter 11 Mini Case Show

(1.) Should you subtract interest expense or dividends when calculating project cash flow? Answer: See
Chapter 11 Mini Case Show

(2.) Suppose the firm had spent $100,000 last year to rehabilitate the production line site. Should this be
included in the analysis? Explain. Answer: See Chapter 11 Mini Case Show

(3.) Now assume that the plant space could be leased out to another firm at $25,000 per year. Should this be
included in the analysis? If so, how? Answer: See Chapter 11 Mini Case Show

(4.) Finally, assume that the new product line is expected to decrease sales of the firm’s other lines by
$50,000 per year. Should this be considered in the analysis? If so, how? Answer: See Chapter 11 Mini
Case Show

Analysis of New Expansion Project

Part I: Input Data

Equipment cost $200,000 Key Output: NPV = $88,026

Shipping charge $10,000
Installation charge $30,000
Economic Life 4
Salvage Value $25,000
Tax Rate 40%
Cost of Capital 10%
Units Sold 1,250
Sales Price Per Unit $200
Incremental Cost Per Unit $100
NWC/Sales 12%
Inflation rate 3%
b. Disregard the assumptions in Part a. What is Shrieves' depreciable basis? What are the annual
depreciation expenses?

Annual Depreciation Expense

Depreciable Basis = Equipment + Freight + Installation

Depreciable Basis = $240,000

Remaining
Year % x Basis = Depr. Book Value
1 0.33 $240,000 $79,200 $160,800
2 0.45 240,000 108,000 52,800
3 0.15 240,000 36,000 16,800
4 0.07 240,000 16,800 0

c. Calculate the annual sales revenues and costs (other than depreciation). Why is it important to include
inflation when estimating cash flows? See answer to part d.

d. Construct annual incremental operating cash flow statements.

Annual Operating Cash Flows

Year 1 Year 2 Year 3 Year 4
Units 1,250 1,250 1,250 1,250
Unit price $200.00 $206.00 $212.18 $218.55
Unit cost $100.00 $103.00 $106.09 $109.27

Sales $250,000 $257,500 $265,225 $273,182

Costs 125,000 128,750 132,613 136,591
Depreciation 79,200 108,000 36,000 16,800
Operating income before taxes (EBIT) $45,800 $20,750 $96,613 $119,791
Taxes (40%) 18,320 8,300 38,645 47,916
EBIT (1 – T) $27,480 $12,450 $57,968 $71,875
Depreciation 79,200 108,000 36,000 16,800
Net operating CF $106,680 $120,450 $93,968 $88,675

e. Estimate the required net working capital for each year, and the cash flow due to investments in net working
capital.

Annual Cash Flows due to Investments in Net Working Capital

Year 0 Year 1 Year 2 Year 3 Year 4

Sales $250,000 $257,500 $265,225 $273,182
NWC (% of sales) 30,000 30,900 31,827 32,782
CF due to investment in NOWC) (30,000) (900) (927) (955) 32,782
f. Calculate the after-tax salvage cash flow.
Hypothetical: If sold after
After-tax Salvage Value 3 years for

Based on
facts in case: $25,000 $10,000
Salvage value $25,000 $25,000 $10,000
Book value 0 16,800 16,800
Gain or loss $25,000 $8,200 ($6,800)
Tax on salvage value 10,000 3,280 (2,720)
Net terminal cash flow $15,000 $21,720 $12,720

g. Calculate the net cash flows for each year. Based on these cash flows, what are the project’s NPV, IRR,
MIRR, and payback? Do these indicators suggest the project should be undertaken?

Projected Net Cash Flows

Year 0 Year 1 Year 2 Year 3 Year 4

Investment Outlay: Long Term Assets ($240,000)

Operating Cash Flows $106,680 $120,450 $93,968 $88,675
CF due to investment in NWC (30,000) (900) (927) (955) 32,782
Salvage Cash Flows 15,000
Net Cash Flows ($270,000) $105,780 $119,523 $93,013 $136,457

NPV $88,026
IRR 23.9% PV of InflowsTV of Inflows
$358,026 $524,186
Years
Find MIRR 0 1 2 3 4
Net Cash Flows ($270,000) $105,780 $119,523 $93,013 $136,457
102,314
144,623
140,793
PV= ($270,000) TV = $524,186

To find MIRR, we could now find the discount rate that equates the PV and TV. But it is easier to use the MIRR
function.
MIRR = 18.0%

Find Payback Years

0 1 2 3 4
Cash Flow ($270,000) $105,780 $119,523 $93,013 $136,457
Cumulative Cash Flow for Payback ($270,000) ($164,220) ($44,697) $48,316 $184,772

Payback = 2.5
h. What does the term ”risk” mean in the context of capital budgeting; to what extent can risk be quantified; and
when risk is quantified, is the quantification based primarily on statistical analysis of historical data or on
subjective, judgmental estimates?

Risk in capital budgeting really means the probability that the actual outcome will be worse than the expected
outcome. For example, if there were a high probability that the expected NPV as calculated above will actually
turn out to be negative, then the project would be classified as relatively risky. The reason for a worse-than-
expected outcome is, typically, because sales were lower than expected, costs were higher than expected, and/or the
project turned out to have a higher than expected initial cost. In other words, if the assumed inputs turn out to be
worse than expected then the output will likewise be worse than expected. We use Excel to examine the project's
sensitivity to changes in the input variables.

i. (1.) What are the three types of risk that are relevant in capital budgeting? Answer: See Chapter 11 Mini Case
Show

(2.) How is each of these risk types measured, and how do they relate to one another? Answer: See Chapter 11
Mini Case Show

(3.) How is each type of risk used in the capital budgeting process? Answer: See Chapter 11 Mini Case Show

Evaluating Risk: Sensitivity Analysis

Sensitivity of NPV and to Variations in Input Variables

j. (1.) What is sensitivity analysis? Answer: See Chapter 11 Mini Case Show
(2.) Perform a sensitivity analysis on the unit sales, salvage value, and cost of capital for the project. Assume
that each of these variables can vary from its base-case, or expected, value by plus and minus 10%, 20%,
and
30%. Include a sensitivity diagram, and discuss the results.

Here we use an Excel "Data Table" to find the NPVs for changes in unit sales, salvage value, and WACC holding
other things constant--changing one variable at a time. This produces the sensitivity analys as shown below.

We summarize the data tables and show the sensitivity analysis graph below:

% Deviation WACC % Deviation 1st YEAR UNIT SALES % Deviation SALVAGE

from NPV from Units NPV from Variable NPV
Base Case WACC 88,026 Base Case Sold $88,026 Base Case Cost $88,026
-30% 7.0% $113,284 -30% 875 $16,665 -30% $17,500 $84,953
-15% 8.5% 100,306 -15% 1,063 52,346 -15% 21,250 86,490
0% 10.0% 88,026 0% 1,250 88,026 0% 25,000 88,026
15% 11.5% 76,395 15% 1,438 123,707 15% 28,750 89,563
30% 13.0% 65,368 30% 1,625 159,387 30% 32,500 91,100
Evaluating Risk: Sensitivity Analysis

Sensitivity Analysis
NPV ($)

180,000
Units Sold
160,000
140,000
120,000 Salvage
100,000 Value
80,000
60,000
WACC
40,000
20,000
0
-40% -30% -20% -10% 0% 10% 20% 30% 40%
Deviation from Base-Case Value

Deviation NPV Deviation from Base Case

from Units
Base Case WACC Sold Salvage
-30% $113,284 $16,665 $84,953
-15% 100,306 52,346 86,490
0% 88,026 88,026 88,026
15% 76,395 123,707 89,563
30% 65,368 159,387 91,100

Range $47,915 $176,053 $6,147

(3.) What is the primary weakness of sensitivity analysis? What is its primary usefulness? Answer: See
Chapter 11 Mini Case Show

except unit sales and sales price: If product acceptance is poor, unit sales would be only 900 units a year and
the
unit price would only be $160; a strong consumer response would produce sales of 1,600 units and a unit price
of
$240. Sidney believes that there is a 25% chance of poor acceptance, a 25% chance of excellent acceptance, and
a 50% chance of average acceptance (the base case).

(1.) What is scenario analysis?

Scenario analysis extends risk analysis in two ways: (1) It allows us to change more than one variable at a time,
hence to see the combined effects of changes in several variables on NPV, and (2) it allows us to bring in the
probabilities of changes in the key variables.

(2.) What is the worst-case NPV? The best-case NPV?

(3.) Use the worst-, most likely, and best-case NPVs and probabilities of occurrence to find the project’s
expected
NPV, standard deviation, and coefficient of variation.
Evaluating Risk: Scenario Analysis
We could find the NPV by entering the value of unit sales and price for each scenario and then recording the NPV
(this is what we did for the table below). Alternatively, we could use Tools, Scenarios to define the inputs for each
scenario, which we did and show in the Scenario Summary Tab below. In fact, you could even use Tools,
Scenarios, and then click the Summary button on the dialog box, and it will automatically create a table similar to
the one below. This is a powerful feature of Excel, and we encourage you to explore it.

Scenario Analysis
Squared Deviation
Scenario Probability Unit Sales Unit Price NPV times Probability

Best Case 25% 1,600 $240 $278,965 $7,862,111,358.79

Base Case 50% 1,250 $200 $88,030 $92,450,542.34
Worst Case 25% 900 $160 ($48,514) $5,635,612,088.43
Quick calculation:
Expected NPV = $101,628 $101,628
Standard Deviation = $116,577 $116,577
Coefficient of Variation = Std Dev / Expected NPV = 1.15

l. Are there problems with scenario analysis? Define simulation analysis, and discuss its principal advantages and
disadvantages. Answer: See Chapter 11 Mini Case Show

Monte Carlo Simulation

Monte Carlo simulation is similar to scenario analysis in that different values of key input variables are used.
Unlike scenario analysis, Monte Carlo simulation draws the input values from specified probability distributions
and then computes the NPV. It repeats this process hundreds, or even thousands, of times. It then averages the
NPVs from each repetition.

Risk Adjusted Cost of Capital

m. (1.) Assume that Shrieves' average project has a coefficient of variation in the range of 0.2 to 0.4. Would the
new line be classified as high risk, average risk, or low risk? What type of risk is being measured here?
Answer: See Chapter 11 Mini Case Show

(2.) Shrieves typically adds or subtracts 3 percentage points to the overall cost of capital to adjust for risk.
Should the new line be accepted?

The CV of this project is 1.15, which is larger than the CV range of the firm's average project. Consequently, this
project is riskier than the firm's average project, so management should add 3% to the WACC to risk adjust.
Cost of capital for average projects: 10%
Adjustment for risky projects: 3%
Risk adjusted cost of capital: 13%

NPV with risk-adjusted cost of capital: $65,368 (See the +30% WACC in the sensitivity analysis above.)

(3.) Are there any subjective risk factors that should be considered before the final decision is made? Answer:
See Chapter 11 Mini Case Show
m. What is a real option? What are some types of real options? Answer: See Chapter 11 Mini Case Show
$200,000
$10,000
$30,000
4
$25,000
40%
10%
1,250
$200
$100
12%
3%
$200,000
$10,000
$30,000
4
$25,000
40%
10%
1,600
$240
$100
12%
3%
$200,000
$10,000
$30,000
4
$25,000
40%
10%
900
$160
$100
12%
3%
$200,000
$10,000
$30,000
4
$25,000
40%
10%
1,250
$200
$100
12%
0%
Scenario Summary
Current Values: Base Case Best Case
Changing Cells:
$D$36 $200,000 $200,000 $200,000
$D$37 $10,000 $10,000 $10,000
$D$38 $30,000 $30,000 $30,000
$D$39 4 4 4
$D$40 $25,000 $25,000 $25,000
$D$41 40% 40% 40%
$D$42 10% 10% 10%
$D$43 1,250 1,250 1,600
$D$44 $200 $200 $240
$D$45 $100 $100 $100
$D$46 12% 12% 12%
$D$47 3% 3% 3%
Result Cells:
$C$113 $88,030 $88,030 $278,965
$C$114 23.9% 23.9% 48.3%
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
Worst Case Base-but forget inflation

$200,000 $200,000
$10,000 $10,000
$30,000 $30,000
4 4
$25,000 $25,000
40% 40%
10% 10%
900 1,250
$160 $200
$100 $100
12% 12%
3% 0%

($48,514) $78,387
1.0% 22.7%
 Section 11.7 Scenario Analysis

Monte Carlo simulation is similar to scenario analysis in that different values of key inputs are used Unlike scenario
analysis, Monte Carlo simulation draws a trial set of input values from specified probability distributions and then
computes the NPV for this trial. This process is repeated for hundreds, or even thousands, of trials, with key results
(like NPV) saved from each trial. After running the number of desired trials, the NPVs from the trials can be averaged
estimate the project's expected NPV; the trial results can also be used to provide a histogram showing the project's
possible outcomes.

The green area below is the same project as in the mini case, but we have replaced the inputs fro units sold and sales
price with random variables drawn from normal distributions with the expected values and means shown next to the
inputs. Notice that each time the sheet makes a calculation, the values for unit sales, sales price, and NPV change
(Hint: you can make the sheet calculate by hitting the F9 key).

Here is a tip for simulating a project analysis. If you have already done the analysis and it is in a different worksheet,
see how many rows it takes. Delete the green area below and add enough rows so that there will be room for your
previous analysis. For example, this model was in the "Model" tab in the file Ch 11 Mini Case.xls, rows 33-132. We wen
into that file, selected Rows 32-135, copied them, and then pasted them into Rows 32-135 of this Worksheet. Because
we pasted them into the same row numbers from which we copied them, all the formula references remained correct.
We then edited this worksheet.

Analysis of New Expansion Project

Part I: Input Data

Equipment cost $200,000 Key Output: NPV =

Shipping charge $10,000
Installation charge $30,000
Economic Life 4
Salvage Value $25,000
Tax Rate 40%
Expected
Cost of Capital 10% Value Std. Dev.
Units Sold Random variable = 1,339 1,250 200
Sales Price Per Unit Random variable = $202 $200 $30
Incremental Cost Per Unit $100
NWC/Sales 12%
Inflation rate 3%
b. Disregard the assumptions in Part a. What is Shrieves' depreciable basis? What are the annual
depreciation expenses?

Annual Depreciation Expense

Depreciable Basis = Equipment + Freight + Installation

Depreciable Basis = $240,000
 Year % x Basis = Depr.
1 0.33 $240,000 $79,200
2 0.45 240,000 108,000
3 0.15 240,000 36,000
4 0.07 240,000 16,800

c. Calculate the annual sales revenues and costs (other than depreciation). Why is it important to include
inflation when estimating cash flows? See answer to part d.

d. Construct annual incremental operating cash flow statements.

Annual Operating Cash Flows

Year 1 Year 2 Year 3
Units 1,339 1,339 1,339
Unit price $202.48 $208.55 $214.81
Unit cost $100.00 $103.00 $106.09

Sales $271,085 $279,218 $287,597

Costs 133,884 137,901 142,038
Depreciation 79,200 108,000 36,000
Operating income before taxes (EBIT) $58,001 $33,317 $109,559
Taxes (40%) 23,200 13,327 43,824
EBIT (1 – T) $34,801 $19,990 $65,735
Depreciation 79,200 108,000 36,000
Net operating CF $114,001 $127,990 $101,735

e. Estimate the required net working capital for each year, and the cash flow due to investments in net working
capital.

Annual Cash Flows due to Investments in Net Working Capital

Year 0 Year 1 Year 2 Year 3

Sales $271,085 $279,218 $287,597
NWC (% of sales) 32,530 33,506 34,512 35,546
CF due to investment in NOWC) (32,530) (976) (1,006) (1,034)

f. Calculate the after-tax salvage cash flow. Hypothetical: If sold

After-tax Salvage Value after 3 years for
Based on
facts in case: $25,000 $10,000
Salvage value $25,000 $25,000 $10,000
Book value 0 16,800 16,800
Gain or loss $25,000 $8,200 ($6,800)
Tax on salvage value 10,000 3,280 (2,720)
Net terminal cash flow $15,000 $21,720 $12,720

g. Calculate the net cash flows for each year. Based on these cash flows, what are the project’s NPV, IRR,
MIRR, and payback? Do these indicators suggest the project should be undertaken?
Projected Net Cash Flows
Year 0 Year 1 Year 2

Investment Outlay: Long Term Assets ($240,000)

Operating Cash Flows $114,001 $127,990
CF due to investment in NWC (32,530) (976) (1,006)
Salvage Cash Flows
Net Cash Flows ($272,530) $113,025 $126,984

NPV $111,377
IRR 27.2% PV of Inflows
TV of Inflows
$383,907 $562,079
Years
Find MIRR 0 1 2
Net Cash Flows ($272,530) $113,025 $126,984

PV= ($272,530)

To find MIRR, we could now find the discount rate that equates the PV and TV. But it is easier to use the MIRR function.
MIRR = 19.8%

Find Payback Years

0 1 2
Cash Flow ($272,530) $113,025 $126,984
Cumulative Cash Flow for Payback ($272,530) ($159,505) ($32,521)

Payback = 2.3

How the Simulation Works

We use a Data Table to perform the simulation (the Data Table is below, shaded bright yellow). When the Data Table is
updated, it will insert new random variables for each of the inputs we allow to change in Panel A above, run the
analysis is Panel C above, and then save the NPV for each trial (we also save the input variables for each trial so that
we can verify that they are behaving as we expect). We set the first column of the Data Table (the variable to be
changed in each row) to numbers from 1-100. We don't really use these numbers anywhere in the analyis, but if we tel
the Data Table to treat these as the Column inputs, Excel will recalculate all items in the Data Table, including the
random inputs and the resulting NPV. In other words, we "trick" Excel into doing a simulation. We tell Excel to insert
each of the Column inputs in the Data Table into the cell immediately below this box. This cell isn't linked to anything
else, but each time Excel updates a row of the Data Table, all the random values will be updated.

Column input cell to "trick" Excel into updating random variables in Data Table: 1

Excel normally updates all values in a Data Table each time any cell that is related to the Data Table changes. In our
case, we have random variables in the Data Table, so each time any cell in the worksheet makes a calculation, the Dat
Table is updated. If the Data Table has many rows, updating it can take up to 20 or 30 seconds. With only 100 rows, it
updates very quickly. But if it bothers you, you can set the worksheet to do automatic calculation except for data
tables.
Excel normally updates all values in a Data Table each time any cell that is related to the Data Table changes. In our
case, we have random variables in the Data Table, so each time any cell in the worksheet makes a calculation, the Dat
Table is updated. If the Data Table has many rows, updating it can take up to 20 or 30 seconds. With only 100 rows, it
updates very quickly. But if it bothers you, you can set the worksheet to do automatic calculation except for data
tables.

You don't need to change anything in this section. It will be updated automatically if you do a simulation. The
summary of the simulation results and the histogram are based on the simulation trials n the Data Table below and ar
updated automatically when you do a simulation. You can do an updated simulation by hitting the F9 key.

Figure 11-27 Summary of Simulation Results (Thousands of Dollars)

Number of Trials = 100

Simulated Input Variables and Key Results

Sales Key Results:

Price Per
Units Sold Unit NPV
Mean $1,339 202 $82,351
Standard deviation 0 0 $91,973
Maximum 1,339 202 $369,463
Minimum 1,339 202 -$122,968

Median $81,194
Probability of NPV > 0 76.0%
Coefficient of variation 1.12

Probability

NPV ($)
Output of Simulation in Data Table

Sales Price
Trial Number Units Sold Per Unit NPV
1,339 $202 $111,377
1 1338.8426 202.47721 45307.2019
2 1338.8426 202.47721 -8666.18667
3 1338.8426 202.47721 165941.17
4 1338.8426 202.47721 123801.5478
5 1338.8426 202.47721 146269.1611
6 1338.8426 202.47721 -22561.4972
7 1338.8426 202.47721 -11457.2086
8 1338.8426 202.47721 -18699.2444
9 1338.8426 202.47721 123222.1099
10 1338.8426 202.47721 44926.6544
11 1338.8426 202.47721 99582.41623
12 1338.8426 202.47721 22113.98566
13 1338.8426 202.47721 249829.8473
14 1338.8426 202.47721 115320.5935
15 1338.8426 202.47721 150833.1604
16 1338.8426 202.47721 -37870.5524
17 1338.8426 202.47721 78234.97247
18 1338.8426 202.47721 173412.77
19 1338.8426 202.47721 164814.1246
20 1338.8426 202.47721 189633.6093
21 1338.8426 202.47721 -8189.64313
22 1338.8426 202.47721 213513.9114
23 1338.8426 202.47721 78367.07554
24 1338.8426 202.47721 10713.50987
25 1338.8426 202.47721 -30544.7021
26 1338.8426 202.47721 -44217.8138
27 1338.8426 202.47721 129074.6646
28 1338.8426 202.47721 130582.3601
29 1338.8426 202.47721 369463.4668
30 1338.8426 202.47721 238946.7286
31 1338.8426 202.47721 233409.6501
32 1338.8426 202.47721 93439.42149
33 1338.8426 202.47721 10428.19794
34 1338.8426 202.47721 95899.98497
35 1338.8426 202.47721 145529.9827
36 1338.8426 202.47721 237915.9747
37 1338.8426 202.47721 37895.71675
38 1338.8426 202.47721 177740.0219
39 1338.8426 202.47721 137137.7068
40 1338.8426 202.47721 50501.38228
41 1338.8426 202.47721 89889.23236
42 1338.8426 202.47721 130433.4319
43 1338.8426 202.47721 165438.1864
44 1338.8426 202.47721 -44733.5666
45 1338.8426 202.47721 143306.7768
46 1338.8426 202.47721 128426.8558
47 1338.8426 202.47721 152688.1764
48 1338.8426 202.47721 69546.07718
49 1338.8426 202.47721 42511.77181
50 1338.8426 202.47721 46246.87685
51 1338.8426 202.47721 7639.39205
52 1338.8426 202.47721 -26388.4995
53 1338.8426 202.47721 228629.6866
54 1338.8426 202.47721 73155.23093
55 1338.8426 202.47721 74229.39922
56 1338.8426 202.47721 -3531.61102
57 1338.8426 202.47721 167325.3675
58 1338.8426 202.47721 84020.80589
59 1338.8426 202.47721 95223.0948
60 1338.8426 202.47721 10692.96319
61 1338.8426 202.47721 -76846.5082
62 1338.8426 202.47721 -48274.036
63 1338.8426 202.47721 97292.21529
64 1338.8426 202.47721 71892.66607
65 1338.8426 202.47721 -122968.053
66 1338.8426 202.47721 -33978.8865
67 1338.8426 202.47721 -2679.46609
68 1338.8426 202.47721 -14494.7085
69 1338.8426 202.47721 125190.1787
70 1338.8426 202.47721 -28671.0055
71 1338.8426 202.47721 -1843.51178
72 1338.8426 202.47721 88750.65692
73 1338.8426 202.47721 106193.8109
74 1338.8426 202.47721 -41570.7308
75 1338.8426 202.47721 -3768.54491
76 1338.8426 202.47721 70603.81279
77 1338.8426 202.47721 224729.7633
78 1338.8426 202.47721 208463.6803
79 1338.8426 202.47721 46270.5473
80 1338.8426 202.47721 156279.6021
81 1338.8426 202.47721 -18035.6808
82 1338.8426 202.47721 95098.86715
83 1338.8426 202.47721 134972.876
 84 1338.8426 202.47721 105278.6884
85 1338.8426 202.47721 250251.5918
86 1338.8426 202.47721 189948.9504
87 1338.8426 202.47721 11175.17362
88 1338.8426 202.47721 173071.3658
89 1338.8426 202.47721 275061.0078
90 1338.8426 202.47721 126151.8816
91 1338.8426 202.47721 147275.0974
92 1338.8426 202.47721 12614.08394
93 1338.8426 202.47721 50257.92985
94 1338.8426 202.47721 29823.25463
95 1338.8426 202.47721 -21347.4793
96 1338.8426 202.47721 57817.15252
97 1338.8426 202.47721 -56964.1551
98 1338.8426 202.47721 16126.00881
99 1338.8426 202.47721 4691.11017
100 1338.8426 202.47721 94877.66928
 1/1/2012

puts are used Unlike scenario

ability distributions and then
ands, of trials, with key results
from the trials can be averaged to
togram showing the project's

e inputs fro units sold and sales

and means shown next to the
sales price, and NPV change

d it is in a different worksheet,
t there will be room for your
ni Case.xls, rows 33-132. We went
135 of this Worksheet. Because
a references remained correct.

$111,377

ual
 Remaining
Book Value
$160,800
52,800
16,800
0

to include

Year 4
1,339
$221.25
$109.27

$296,219
146,295
16,800
$133,124
53,250
$79,874
16,800
$96,674

in net working

Year 4
$296,219

35,546

NPV, IRR,
 Year 3 Year 4

$101,735 $96,674
(1,034) 35,546
15,000
$100,701 $147,220

Years
3 4
$100,701 $147,220
110,772
153,651
150,436
TV = $562,079

o use the MIRR function.

Years
3 4
$100,701 $147,220
$68,180 $215,401

yellow). When the Data Table is

in Panel A above, run the
t variables for each trial so that
Table (the variable to be
where in the analyis, but if we tell
e Data Table, including the
mulation. We tell Excel to insert
This cell isn't linked to anything
e updated.

Don't change the the red cell.

he Data Table changes. In our

eet makes a calculation, the Data
seconds. With only 100 rows, it
calculation except for data
ou do a simulation. The
s n the Data Table below and are
y hitting the F9 key.

Scratch work for chart: see comments.

Count
Range bottom 0 Percent
-$369,463 0 0%
-$343,073 0 0%
-$316,683 0 0%
-$290,293 0 0%
-$263,902 0 0%
-$237,512 0 0%
-$211,122 0 0%
-$184,732 0 0%
-$158,341 0 0%
-$131,951 1 1%
-$105,561 0 0%
-$79,171 2 2%
-$52,780 8 8%
-$26,390 13 13%
$0 9 9%
NPV ($) $26,390 9 9%
$52,780 8 8%
$79,171 11 11%
$105,561 10 10%
$131,951 9 9%
$158,341 7 7%
$184,732 3 3%
$211,122 4 4%
$237,512 4 4%
$263,902 1 1%
$290,293 0 0%
$316,683 0 0%
$343,073 1 1%
$369,463 0 0%
Sum 100 100%