Produce Fat Reducing Pill Project ASSUMPTIONS all $000's $000's...

Produce Fat Reducing Pill Project

ASSUMPTIONS all $000's
$000's
Production Plant cost $50,000
Salvage sale price of plant after 7 years = 20% of initial $10,000
Sales $300million in first year rising 15% each year for 5 years
$000's
DEPRECIATION SCHEDULE REDUCING VALUE METHOD
Year % Beginning Book Value Depreciation Ending Book Value
1 25.00% 50000 12500 37500
2 25.00% 37500 9375 28125
3 25.00% 28125 7031 21094
4 25.00% 21094 5273 15820
5 25.00% 15820 3955 11865
6 25.00% 11865 2966 8899
7 25.00% 8899 2225 6674
43326

PROJECTED INCOME , $000's
YEAR
0 1 2 3 4 5 6 7
Revenue 300000 345000 396750 456263 524702 524702 524702
Variable (operating) costs (55% of revenue) 165000 189750 218213 250944 288586 288586 288586
Fixed (admin) costs 400 400 400 400 400 400 400
Depreciation 12500 9375 7031 5273 3955 2966 2225
EBIT 122100 145475 171106 199645 231761 232750 233491
Taxes $36,630 $43,643 $51,332 $59,893 $69,528 $69,825 $70,047
Net Income $85,470 $101,833 $119,774 $139,751 $162,233 $162,925 $163,444

PROJECTED CASH FLOWS, Fat Pill Project

Tax Rate 30%
YEAR
0 1 2 3 4 5 6 7
I. Operating Cash Flow
EBIT 122100 145475 171106 199645 231761 232750 233491
Depreciation 12500 9375 7031 5273 3955 2966 2225
Taxes $36,630 $43,643 $51,332 $59,893 $69,528 $69,825 $70,047
Operating Cash Flow 171230 198493 229469 264812 305244 305541 305763
ii. Net Working Capital
Initial NWC -1000
Change in NWC
NWC Recovery 500
Total change in NWC -1000 0 0 0 0 0 0 500
iii. Capital Spending
Initial Outlay -50000
After tax salvage 9002
Capital Spending -50000 9002


PROJECTED TOTAL CASH FLOWS
YEAR
0 1 2 3 4 5 6 7
Operating Cash Flow 0 171230 198493 229469 264812 305244 305541 305763
Total change in NWC -1000 0 0 0 0 0 0 500
Capital Spending -50000 0 0 0 0 0 0 9002
Total Project Cash Flow -51000 171230 198493 229469 264812 305244 305541 315265
Cumulative Cash Flow -51000 120230 318723 548192 813003 1118247 1423788 1739054
Discounted Cash Flow -51000 155664 164043 172404 180870 189533 172470 161781
Cumulative Disc Cash Flow -51000 104664 268707 441111 621981 811513 983983 1145764
WACC 10%
Internal Rate of Return 310%
Payback (years) 1

NPV $1,145,764

No of shares + options (000's) 216000 POSSIBLE SHARE PRICE
2005 2006 2007 2008 2009 2010 2011
Cum. Disc Cash Flow div by no of shares $0.48 $1.24 $2.04 $2.88 $3.76 $4.56 $5.30
Disc cash flow div no of shares times 5 $3.60 $3.80 $3.99 $4.19 $4.39 $3.99 $3.74
net income div by no of shares times 8 (P/E =8) $3.17 $3.77 $4.44 $5.18 $6.01 $6.03 $6.05