CASE STUDY

Case Study - Burlington Motor Carriers

Case Study - Burlington Motor Carriers

MACRS Depreciation Table

Un-Depreciated Amount 

Year

1

=

MACRS

=

8000000

/

5

=

1600000

8000000

-

1600000

=

6400000

Year

2

=

MACRS

=

6400000

/

5

=

1280000

6400000

-

1280000

=

5120000

Year

3

=

MACRS

=

5120000

/

5

=

1024000

5120000

-

1024000

=

4096000

Year

4

=

MACRS

=

4096000

/

5

=

819200

4096000

-

819200

=

3276800

Year

5

=

MACRS

=

3276800

/

5

=

655360

3276800

-

655360

=

2621440

Year

6

=

MACRS

=

2621440

/

5

=

524288

2621440

-

524288

=

2097152

Year

7

=

MACRS

=

2097152

/

5

=

419430

2097152

-

419430

=

1677722

Year

8

=

MACRS

=

1677722

/

5

=

335544

1677722

-

335544

=

1342177

Cash Flow Statement

 

 

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Beginning Cash Balance

 

(10,825,000)

(21,650,000)

(32,475,000)

(43,300,000)

(54,125,000)

(64,950,000)

(75,775,000)

Cash Inflows (Income):

Total Revenue

1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 Total Cash Inflows

1,250,000 (9,575,000)

(20,400,000)

(31,225,000)

(42,050,000)

(52,875,000)

(63,700,000)

(74,525,000)

Cash Outflows (Expenses):

Satellite hook up investment

8,000,000 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000

Construction of message relaying system

2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000

Depreciation

1,600,000 1,280,000 1,024,000 819,200 655,360 524,288 419,430 335,544

Tax

475,000 475,000 475,000 475,000 475,000 475,000 475,000 475,000 Total Cash Outflows

12,075,000 12,075,000 12,075,000 12,075,000 12,075,000 12,075,000 12,075,000 12,075,000

Ending Cash Balance

(10,825,000)

(21,650,000)

(32,475,000)

(43,300,000)

(54,125,000)

(64,950,000)

(75,775,000)

(86,600,000)

Sensitivity Analysis in Finance

Discounted Factor

18%

Year

0

1

2

3

4

5

6

7

8

Net Cashflow

($12,075,000)

$1,250,000

($9,575,000)

($20,400,000)

($31,225,000)

($42,050,000)

($52,875,000)

($63,700,000)

($74,525,000)

Cumulative Cashflow

($12,075,000)

($10,825,000)

($20,400,000)

($40,800,000)

($72,025,000)

($114,075,000)

($166,950,000)

($230,650,000)

($305,175,000)

Discounted Cashflow

($12,075,000)

$1,059,322

($6,876,616)

($12,416,070)

($16,105,508)

($18,380,443)

($19,586,568)

($19,997,025)

($19,826,494)

NPV

($124,204,400)

From the above sensitivity analysis, it can be observed that the net present value of the Burlington Motor Carriers is in negative which allows to compare initial investment with future returns. It is widely used to study the feasibility of a project or new business, to indicate whether it is worthwhile, or whether it is more advantageous than simply leaving the money invested (Strischek, 2001, 42-38). Moreover, it can be said that the Burlington Motor Carriers should not install a two-way mobile satellite messaging service on its 2,000 trucks.

In relation to sensitivity analysis of the Burlington Motor Carriers, the most significant aspects are the following types of risks:

Risks associated with the instability of economic legislation and the current economic situation, investment conditions and the use of profits.External economic risk (the possibility of introducing restrictions on trade and delivery, closures, etc.)

Completeness or accuracy of information on the dynamics of technical and economic parameters, the parameters ...