Can someone explain how we got NPV IRR and Payback period

Anonymous
timer Asked: Nov 29th, 2016

Question description

5. WORST CASE SCENARIO

0

1

2

3

4

5

Land opportunity cost

(500,000)

Building

(10,000,000)

Net revenues

3,750,000

3,862,500

3,978,375

4,097,726

4,220,658

Less labor cost

800,000

824,000

848,720

874,182

900,407

Utilities

50,000

51,500

53,045

54,636

56,275

Supplies

1,500,000

1,545,000

1,591,350

1,639,091

1,688,263

Incremental overhead

36,000

37,080

38,192

39,338

40,518

Net income

1,364,000

1,404,920

1,447,068

1,490,480

1,535,194

Plus : net land salvage value

500000

Plus : net bldng/eqp value

3000000

Net cash flow

(10,500,000)

1,364,000

1,404,920

1,447,068

1,490,480

5,035,194

NPV = $ (2,867,228.81)

IRR 0.62%.

Payback period 4.95.

Best case scenario.

best case

0

1

2

3

4

5

Land opportunity cost

(500,000)

Building

(10,000,000)

Net revenues

6,250,000

6,437,500

6,630,625

6,829,544

7,034,430

Less labor costs

800,000

824,000

848,720

874,182

900,407

Utilities

50,000

51,500

53,045

54,636

56,275

Supplies

2,500,000

2,575,000

2,652,250

2,731,818

2,813,772

Incremental overhead

36,000

37,080

38,192

39,338

40,518

Net income

2,864,000

2,949,920

3,038,418

3,129,570

3,223,457

Plus : net land salvage value

500000

Plus : net building/equipment value

7000000

Net cash flow

(10,500,000)

2,864,000

2,949,920

3,038,418

3,129,570

10,723,457

NPV $ 5,620,356.65

IRR 25.11%

Payback period 3.86.

Expected NPV = 70%* 1,376,563.92 + 15%*5,620,356.65 + 15 %*( 2,867,228.81) =$1,376,563.92.

6.

Base case

0

1

2

3

4

5

Land opportunity cost

(500,000)

building

(10,000,000)

Net revenues

5,0000,000

5,150,000

5,304,500

5,463,635

5,627,444

Less labor cost

800,000

824,000

848,720

874,182

900,407

Utilities

50,000

51,500

53,045

54,636

56,275

Supplies

2,000,000

2,060,000

2,121,800

2,185,454

2,251,018

Incremental

Overhead

36,000

37,080

38,192

39,338

40,518

Net income

2,114,000

2,177,420

2,242,743

2,310,025

2,379,326

Plus net land salvage value

500,000

Plus net building/equipment value

500,000

Net cash flow

10,500,000

2,114,000

2,177,420

2,242,743

2,310,025

2,379,326

NPV

323,732.63

IRR

14.01%

Payback period

4.21

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