Prairie Winds Pasta--Capital Budgeting

Initial Investment PBDT

Cost of machine 40,000,000 270,000* .37 = 99,900,000 Wholesale price

Shipping 250,000 270,000* .26 = 70,200,000 Production cost

Installation 115,000 99,900,000

NW Capital 2,000 - 70,200,000

Total 40,367,000 29,700,000

-100,000 Rent revenue (opportunity cost)

29,600,000

-2,700,000 Fixed Cost

26,900,000 (.6)= 16,140,000 = PBDT

Year 1

40,365,000

*.14

5,651,000 (.4) = 2,260,440 + 16,140,000 = 18,400,440 (1.04) = 19,136,457.60

Year 2

40,365,000

*.25

10,091,250 (.4) = 4,036,500 + 16,140,000 = 20,176,500 (1.04) = 20,983,560

Year 3

40,365,000

*.17

6,862,050 (.4) = 2,744,820 +16,140,000 = 18,884,820 (1.04) = 19,640,212.80

Year 4

40,365,000

*.13

5,247,450 (.4) = 2,099,980 +16,140,000 = 18,239,980(1.04) = 18,969,579.20

Year 5

40,365,000

*.09

3,632,850 (.4) = 1,453,140 +16,140,000 = 17,593,140 (1.04) = 18,296,865.60

Year 6

40,365,000

*.09

3,632,850 (.4) = 1,453,140 +16,140,000 = 17,593,140 (1.04) = 18,296,865.60

Year 7

40,365,000

*.09

3,632,850 (.4) = 1,453,140 +16,140,000 = 17,593,140(1.04) = 18,296,865.60

Year 8

40,365,000

*.04

1,614,600 (.4) = 645,840 +16,140,000 = 16,785,840(1.04) = 17,457,273.60

Year 9

16,140,000 (1.04) = 16,785,600

Year 10

16,140,000 + 902,000 = 17,042,000 (1.04) = 17,723,680

Terminal value= 1,500,000

Tax 1.5(.4)= (600,000)

NW capital= 2000

902,000 Terminal value

WACC = 11.2%

NPV = 69,697,769.36

IRR = 47.03%--After inflation

MIRR= 22%

PI= 2.6

Sensitivity Analysis

11.2 at 4% inflation = 11.65, NPV = 77,377,979.83

11.2 at 8% inflation = 12.1, NPV= 75,280,912.07

11.2 at 12% inflation= 12.54, NPV= 73,287,835.56

11.2 at 16% inflation= 12.99, NPV = 71,36,069.61

11.2 at 20% inflation = 13.44, NPV = 69,379525.52