Rating
Manufacturing Company
Manufacturing Company
Cash Flow
Year
0
1
2
3
4
5
6
7
8
Sales
$950,000
$1,500,000
$1,500,000
$1,500,000
$1,500,000
$1,500,000
$1,500,000
$1,500,000
Less: Direct Cost
$522,500
$825,000
$825,000
$825,000
$825,000
$825,000
$825,000
$825,000
Less: Indirect Cost
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
Less: Depreciation
$200,000
$200,000
$200,000
$200,000
$200,000
EBIT
$147,500
$395,000
$395,000
$395,000
$395,000
$595,000
$595,000
$595,000
Taxes
$51,625
$138,250
$138,250
$138,250
$138,250
$208,250
$208,250
$208,250
EAT
$95,875
$256,750
$256,750
$256,750
$256,750
$386,750
$386,750
$386,750
Add: Depreciation
$200,000
$200,000
$200,000
$200,000
$200,000
Cash Flow from Operation
$295,875
$456,750
$456,750
$456,750
$456,750
$386,750
$386,750
$386,750
Investment
-$1,200,000
$200,000
Net Cash flow
-$1,200,000
$295,875
$456,750
$456,750
$456,750
$456,750
$386,750
$386,750
$586,750
2. NPV
Year
Cash Flow
PV Factor @10%
Present Value
0
-$1,200,000
1
-$1,200,000
1
$295,875
0.909091
$268,977
2
$456,750
0.826446
$377,479
3
$456,750
0.751315
$343,163
4
$456,750
0.683013
$311,966
5
$456,750
0.620921
$283,606
6
$386,750
0.564474
$218,310
7
$386,750
0.513158
$198,464
8
$586,750
0.466507
$273,723
NPV
$1,075,689
3. Payback Period
Year
Cash Flow
Cumulative Cash Flow
0
-$1,200,000
-$1,200,000
1
$295,875
-$904,125
2
$456,750
-$447,375
3
$456,750
$9,375
4
$456,750
$466,125
5
$456,750
$922,875
6
$386,750
$1,309,625
7
$386,750
$1,696,375
8
$586,750
$2,283,125
So the Payback period is between year 2 and 3.Payback Period= 2+447375/456750=2.98 Years
Discussion
The only amount that needs to be recovered in Year 3 is $447,375, ...