Solution
Given
Annual production capacity in ton
Selling price Birr per kg
Total initial investment birr
Salvage value in Birr at the end of 10th year
Operating Cost
Cost of Raw material in Birr per ton of product
Cost of utilities in Birr per ton of product
Factory overhead, administrative, sales and distribution costs in Birr as a function of sales
long- run loan payment, depreciation and amortization and interest
Year
Loan repayment
Interest (12%)
Depreciation and amortization
Neglect tax (35%)
Proj
Year
Capacity Utilization
1 Cash inflow
Annual Revenue
Salvage value
2 Cash out flow
Investment
Raw material
utilities
factory overhead
Depriciation and ammortization
Loan Repayment/capital charge
Interest
Gross profit (1-2)/Cash Flow
Discount factor 12%
PV
c NPV
NPVR
a Payback period calculation
Annual cash flow
Cumulative cash flow
Payback period
Annual Revenue
euqls= Annual production in kg* selling price * capacity utilization
euqls= 10,000,000 kg* 10 Birr/kg * 70%
euqls= 10,000,000 kg* 10 Birr/kg * 80%
euqls= 10,000,000 kg* 10 Birr/kg * 100%
Total cash inflow
annual revenue + salvage value
Rawmaterial
Raw material =70%*5000 Birr/ton*10000 ton
Raw material =80%*5000 Birr/ton*10000 ton
Raw material =10%*5000 Birr/ton*10000 ton
Utilities
Utilities =70%*5000 Birr/ton*10000 ton
Utilities =80%*5000 Birr/ton*10000 ton
Utilities =100%*5000 Birr/ton*10000 ton
factory overhead = 0.25* Annual Revenue
b Break even point is the production volume at which there is no loss or profit
Unit Variable Cost ( RM+Utility)/amout of product
(Unitselling price-unit varable cost)*production Volume= total fixed cost
Total fixed cost
b Break even volume = total fixed cost/(Unitselling price-unit varable cost)
or
Variable costs are raw material and utility at 3rd year
BEP= (fixed cos FC*100)/(SP-VC)
Break even volume
kg
10,000 10,000,000
10
5,400,000
500,000
5,000
2,000
25%
0 1 2 3 4 5
- 1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
- 650,000 520,000 380,000 260,000 130,000
- 540,000 540,000 540,000 540,000 540,000
Projected cash flow
0 1 2 3 4 5
70% 80% 100% 100% 100%
- 70,000,000 80,000,000 100,000,000 100,000,000 100,000,000
0 70,000,000 80,000,000 100,000,000 100,000,000 100,000,000
5,400,000 68,770,000 78,140,000 97,000,000 96,880,000 96,750,000
5,400,000 - - - - -
35,000,000 40,000,000 50,000,000 50,000,000 50,000,000
14,000,000 16,000,000 20,000,000 20,000,000 20,000,000
17,500,000 20,000,000 25,000,000 25,000,000 25,000,000
540,000 540,000 540,000 540,000 540,000
1,080,000 1,080,000 1,080,000 1,080,000 1,080,000
650,000 520,000 380,000 260,000 130,000
(5,400,000) 1,230,000 1,860,000 3,000,000 3,120,000 3,250,000
1.0000 0.8929 0.7972 0.7118 0.6355 0.5674
(5,400,000) 1,098,214 1,482,781 2,135,341 1,982,816 1,844,137
12,426,969
2.30
(5,400,000) 1,230,000 1,860,000 3,000,000
(5,400,000) (4,170,000) (2,310,000) 690,000
0 year 1 year year 2
2.77 0.77 2
1st year
2nd year
3-10 year
1st year
2nd year
3-10 year
1st year
2nd year
3-10 year
1-10 year
7.00
27,000,000
9,000,000 kg
70,000,000 birr
90 %
9,000.0 ton
6 7 8 9 10
- - - - -
- - - - -
540,000 540,000 540,000 540,000 540,000
6 7 8 9 10
100% 100% 100% 100% 100%
100,000,000 100,000,000 100,000,000 100,000,000 100,500,000
100,000,000 100,000,000 100,000,000 100,000,000 100,000,000
500,000
95,540,000 95,540,000 95,540,000 95,540,000 95,540,000
- - - - -
50,000,000 50,000,000 50,000,000 50,000,000 50,000,000
20,000,000 20,000,000 20,000,000 20,000,000 20,000,000
25,000,000 25,000,000 25,000,000 25,000,000 25,000,000
540,000 540,000 540,000 540,000 540,000
- - - - -
- - - - -
4,460,000 4,460,000 4,460,000 4,460,000 4,960,000
0.5066 0.4523 0.4039 0.3606 0.3220
2,259,575 2,017,478 1,801,319 1,608,321 1,596,987
