CEV633 - ASSIGNMENT 1

Part A

a. Generate the cumulative (non-discounted) after-tax cash flow diagram

(Use multiple annual investment display option)

Cash Flow Diagram

1000.0
Project Value (millions of dollars)

500.0 Cumulative
Cash Period

0.0
Land + WC
-500.0
FCIL

-1000.0
-1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
-1500.0

Project Life (Years)

b. From Part (a):

i. Identify the cumulative cash period and cumulative cash ratio
Cumulative Cash Period = $855.21 million dollars
Cumulative Cash Period
Cumulative Cash Ratio = 1 +
Land + WC + FCIL
855.21
Cumulative Cash Ratio = 1 +
1000
Cumulative Cash Ratio = 1.9

ii. Estimate the payback period

3 years

iii. Estimate the rate of return on investment

17.1 %
CEV633 - ASSIGNMENT 1

c. Generate the cumulative (discounted) after-tax cash flow diagram.

(Use multiple annual investment display option)

Cash Flow Diagram

0.0
Project Value (millions of dollars)

NPV
-100.0 Discounted Land + WC
-200.0
-300.0
-400.0
-500.0 Discounted
FCIL
-600.0
-700.0
-800.0
-900.0
-1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Project Life (Years)

d. From Part (c):

i. Identify the net present value and net present value ratio
Net Present Value = $13.63 million dollars
Present Value of All Positive Cash Flows
Net Present Value Ratio = 1 +
Present Value of All Negative Cash Flows
13.63
Net Present Value Ratio = 1 +
800
Net Present Value Ratio = 1.017

ii. Estimate the discounted payback period

5 years

iii. Estimate the discounted cash flow rate of return (DCFROR)

9.7%
CEV633 - ASSIGNMENT 1

Part B

Repeat Part A (a to d) by using a straight-line depreciation method over 7 years.

Non-discounted

Cash Flow Diagram

1000.0
Project Value (millions of dollars)

500.0

0.0

-500.0

-1000.0
-1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
-1500.0

Project Life (Years)

CEV633 - ASSIGNMENT 1

Discounted

Cash Flow Diagram

0.0
Project Value (millions of dollars)

-100.0
-200.0
-300.0
-400.0
-500.0
-600.0
-700.0
-800.0
-900.0
-1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Project Life (Years)

Compare the results with those previous obtained.

Current Depreciation Method: MACRS over 5 years

Straight-line Depreciation Method over 7 years

CEV633 - ASSIGNMENT 1

Propose the depreciation method would you use?

The depreciation method that we use is Straight-line Depreciation Method over 7 years.
CEV633 - ASSIGNMENT 1

Part C

Based on figure above, the net present value data shows the probability for the project start to
loss profit at 67%.
CEV633 - ASSIGNMENT 1

Based on figure above, the discounted cash flow rate of return (DCFROR) data obtain was
0.0943 thus approximately 60% chance.

Hence, this analysis change my decision compared to that for the base case.
CEV633 - ASSIGNMENT 1

Part D

The highest and the lowest NPV obtained from the net present value data presented in figure
above are 970 million and 30 million respectively. The probability of getting 50 million of NPV
from the lowest value is 3% while for the highest NPV the probability obtained is 97%.