with new investment2003 2004 2005

Unit sold 180,000 150,000 189,000 Revenue 89,100,000 74,250,000 93,555,000 COGS 44,550,000 50,519,700 COGS/unit 297 267.3opex 16,335,000 24,324,300

22 0 1

Revenue increase by - 43,065,000 expense increase by - 13,216,500 COGS increase by - 20,225,700

MACRS starting in 2008 year 0 1 5 year assets 0.20 0.32 depreciation 3,600,000 5,760,000

Incremental Approach Year 0 1 Invest new machine

Sell a division of a firm Tax on sale

Revenue increase - 43,065,000 COGS increase - - 23,255,100 Expense Increase - - 11,196,900 Less: depre exp - 3,600,000 - 5,760,000 Income before Tax - 3,600,000 2,853,000 Less Tax 34% 1,224,000 - 970,020 Income after Tax - 2,376,000 1,882,980 plus depre exp 3,600,000 5,760,000

After tax Net Cash Flows 1,224,000 7,642,980 - 85,385,843

Terminal CF -18000000Total cash flow in last period - 102,161,843 7,642,980

Incremental Approach 2003 2004 2005 Year 0 1 2 Initial investment - 18,000,000

AT Revenue increase - 28,422,900 AT COGS increase - - 15,348,366 Expense Increase - - 7,389,954 TS depre 1,224,000 1,958,400

Annual cash flow - 1,224,000 7,642,980 terminal value Total Net Cash Flow - 18,000,000 1,224,000 7,642,980

14.50%0 18,000,000 1 1,224,000 1,068,995.63 2 7,642,980 5,829,774.41 3 13,512,060 9,001,297.28 4 14,847,840 8,638,559.57 5 14,786,640 7,513,496.11 6 114,347,123 50,744,890.67

NPV 64,797,014 82,797,013.68 IRR 59.02%

2006 2007 2008 2009 246,000 264,000 ### 264,000 121,770,000 130,680,000 130,680,000 130,680,000 65,755,800 70,567,200 70,567,200 70,567,200

267.3 267.3 267.3 267.3 31,660,200 33,976,800 33,976,800 33,976,800

2 3 4 5 93,555,000 106,920,000 106,920,000 106,920,000 25,452,900 28,749,600 28,749,600 28,749,600 48,826,800 56,311,200 56,311,200 56,311,200

2 3 4 5 0.19 0.12 0.11 0.06 3,420,000 2,160,000 1,980,000 1,080,000

2 3 4 5

93,555,000 106,920,000 106,920,000 106,920,000 - 50,519,700 - 57,736,800 - 57,736,800 - 57,736,800 - 24,324,300 - 27,799,200 - 27,799,200 - 27,799,200 - 3,420,000 - 2,160,000 - 1,980,000 - 1,080,000 15,291,000 19,224,000 19,404,000 20,304,000 - 5,198,940 - 6,536,160 - 6,597,360 - 6,903,360 10,092,060 12,687,840 12,806,640 13,400,640 3,420,000 2,160,000 1,980,000 1,080,000

13,512,060 14,847,840 14,786,640 14,480,640 85,385,843 99,866,483

13,512,060 14,847,840 14,786,640 114,347,123

2006 2007 2008 2009 3 4 5 6

61,746,300 70,567,200 70,567,200 70,567,200 - 33,343,002 - 38,106,288 - 38,106,288 - 38,106,288 - 16,054,038 - 18,347,472 - 18,347,472 - 18,347,472 1,162,800 734,400 673,200 367,200

13,512,060 14,847,840 14,786,640 14,480,640 99,866,483

13,512,060 14,847,840 14,786,640 114,347,123

without new investmentUnit Price 495COGS 267.3 Unit soldOPEX 26% x T. Revenue Revenue

COGS/unitCOGSopex

MACRS

10 year assets

Without new investment Year Initial investment RevenueLess COGSLESS EXPLESS depreIncome before TAX less: tax 34% Income after Taxplus depreAnnual cash flowTerminal valueTotal cash flow in final year

Without new investment Year Initial investment AT Revenue AT COGS AT expense TS depre Annual cash flow terminal value

Total Net Cash Flow

With new investment

Year Initial investment AT Revenue increase AT COGS increase Expense Increase TS depre Annual cash flow terminal value Total Net Cash Flow

2003 2004 2005 2006 180,000 150,000 102,000 57,000 89,100,000 74,250,000 50,490,000 28,215,000

297 297 ### 44,550,000 30,294,000 16,929,000 16,335,000 11,107,800 6,207,300

cost 56,000,000

depre/year 5,600,000 1999-2004 28,000,000

The initial investment $56M had been made in early 2002 1999 2000 2001 2002

0.10 0.18 0.14 0.12 5,600,000 10,080,000 7,840,000 6,720,000

2003 2004 2005 20060 1 2 3

0 74,250,000 50,490,000 28,215,000 - 44,550,000 - 30,294,000 - 16,929,000 - 16,335,000 - 11,107,800 - 6,207,300 - 3,920,000 - 3,920,000 - 3,920,000 9,445,000 5,168,200 1,158,700 - 3,211,300 - 1,757,188 - 393,958 6,233,700 3,411,012 764,742 3,920,000 3,920,000 3,920,000 10,153,700 7,331,012 4,684,742

2003 2004 2005 20060 1 2 3

049005000 33323400 18621900

-29403000 -19994040 -11173140-10781100 -7331148 -4096818

1,332,800.00 1,332,800.00 1,332,800.00 10153700 7331012 4684742

0 10153700 7331012 4684742

2003 2004 2005 2006

0 1 2 3 - 18,000,000

74,250,000 93,555,000 121,770,000 - 44,550,000 - 50,519,700 - 65,755,800 - 16,335,000 - 24,324,300 - 31,660,200 1,224,000 1,958,400 1,162,800 14,589,000 20,669,400 25,516,800

- 18,000,000 14,589,000 20,669,400 25,516,800

2007 2008 2009 Unit Price 495 48,000 48,000 ### COGS 297 23,760,000 23,760,000 23,760,000 OPEX 22% x T. Revenue 297 297 ### 14,256,000 14,256,000 14,256,000 5,227,200 5,227,200 5,227,200

Year 0 1 2 32003 2004 2005 2006 2007

0.09 0.07 ### 0.07 0.07 5,040,000 3,920,000 3,920,000 3,920,000 3,920,000

2007 2008 2009 4 5 6

23,760,000 23,760,000 23,760,000 - 14,256,000 - 14,256,000 - 14,256,000 - 5,227,200 - 5,227,200 - 5,227,200 - 3,920,000 - 3,360,000 - 1,680,000 356,800 916,800 2,596,800 - 121,312 - 311,712 - 882,912 235,488 605,088 1,713,888 3,920,000 3,360,000 1,680,000 4,155,488 3,965,088 3,393,888

23,406,124 26,800,012

2007 2008 2009 0 4 5 6 1

215681600 15681600 15681600 3-9408960 -9408960 -9408960 4-3449952 -3449952 -3449952 5

1,332,800.00 1,142,400.00 571,200.00 64155488 3965088 3393888 NPV

23406124

4155488 3965088 26800012

2007 2008 2009 0

4 5 6 12

130,680,000 130,680,000 130,680,000 3- 70,567,200 - 70,567,200 - 70,567,200 4- 33,976,800 - 33,976,800 - 33,976,800 5 734,400 673,200 367,200 6 26,870,400 26,809,200 26,503,200 NPV

182,780,690 26,870,400 26,809,200 209,283,890 115,731,243

22% x T. Revenue

4 52008 2009

0.06 0.03 3,360,000 1,680,000

0 10,153,700 8,867,860 7,331,012 5,591,817 4,684,742 3,120,824 4,155,488 2,417,687 3,965,088 2,014,770 26,800,012 11,893,292

33,906,249

- 18,000,000

14,589,000 12,741,485 20,669,400 15,765,832 25,516,800 16,998,467 26,870,400 15,633,355 26,809,200 13,622,488 209,283,890 92,875,866 149,637,492 167,637,492

without new investmentYear 2006 2007 2008 2009 2010 Unit Sold 1,500,000 1,200,000 920,000 570,000 300,000 Total Sales 592,500,000 474,000,000 363,400,000 225,150,000 118,500,000 COGS 355,500,000 284,400,000 218,040,000 135,090,000 71,100,000 OPEX 113,760,000 87,216,000 54,036,000 28,440,000

MACRS The initial investment $56M had been made in early 2002 2002 2003 2004 2005 2006

10 year assets 0.10 0.18 0.14 0.12 0.09 depreciation 5,600,000 10,080,000 7,840,000 6,720,000 5,040,000

year 1 year 2 year 3 year 4 year 52007 2008 2009 2010 2011

0.07 0.07 0.07 0.07 0.06 3,920,000 3,920,000 3,920,000 3,920,000 3,360,000

Without new investme 2006 2007 2008 2009 2010 Year 0 1 2 3 4 Initial investment 0 AT Revenue increase 331,800,000 254,380,000 157,605,000 82,950,000 AT COGS increase 199,080,000 152,628,000 94,563,000 49,770,000 Expense Increase 79,632,000 61,051,200 37,825,200 19,908,000 TS depre 1,176,000 1,176,000 1,176,000 1,176,000 Annual cash flow 0 54,264,000 41,876,800 26,392,800 14,448,000 terminal value Total Net Cash Flow 0 54,264,000 41,876,800 26,392,800 14,448,000

18%0 0 Unit price 395.00 1 54,264,000 45,986,441 COGS 237.00 2 41,876,800 30,075,266 opex 0.24*sale3 26,392,800 16,063,473 4 14,448,000 7,452,118 5 14,280,000 6,241,920 6 90,309,333 33,453,425

NPV 139,272,642

2011 2012 300,000 300,000 118,500,000 118,500,000 71,100,000 71,100,000 28,440,000 28,440,000

year 62012

0.03 1,680,000

2011 2012 5 6

82,950,000 82,950,000 49,770,000 49,770,000 19,908,000 19,908,000 1,008,000 504,000 14,280,000 13,776,000

76,533,333 14,280,000 90,309,333

Unit sold minus 20%Cost of capital 3% higher

with new investment ($18M)Year 2006 2007Unit Sold 1,500,000 1,200,000 Total Sales 592,500,000 474,000,000 COGS 284,400,000 OPEX 113,760,000

MACRS starting in 2008, buy in 2006 year 05 year assets 0.20 depreciation 3,600,000

Revenue increase by 0expense increase by 0COGS increase by 0

Incremental Approach 2006 2007 Year 0 1 Invest new investment - 18,000,000

AT Revenue increase - AT Expense Increase - TS on depreciation (new invest) 1,080,000 AT COGS Increase - After tax Net Cash Flows - 18,000,000 1,080,000 Cash flow from changes in NOWC Terminal valueTotal net cash flow - 18,000,000 1,080,000

2006 2007InventoryAccounts ReceivableAccounts PayableNet Operating Working Capital - - Changes in net working capital - Cash flow from changes in NOWC

18%0 - 18,000,000 1 1,080,000 915,254 2 - 18,875,200 - 13,555,875 3 52,091,600 31,704,556 4 82,049,600 42,320,271

5 90,843,600 39,708,575 6 667,704,267 247,338,719

NPV 330,431,500 348,431,500 IRR 105.51

2008 2009 2010 2011 1,272,000 1,648,000 1,872,000 1,872,000 502,440,000 650,960,000 739,440,000 739,440,000 271,317,600 351,518,400 399,297,600 399,297,600 130,634,400 169,249,600 192,254,400 192,254,400

1 2 3 4 0.32 0.19 0.12 0.11 5,760,000 3,420,000 2,160,000 1,980,000

139,040,000 425,810,000 620,940,000 620,940,000 43,418,400 115,213,600 163,814,400 163,814,400 53,277,600 216,428,400 328,197,600 328,197,600

2008 2009 2010 2011 2 3 4 5

97,328,000 298,067,000 434,658,000 434,658,000 - 30,392,880 - 80,649,520 - 114,670,080 - 114,670,080 1,728,000 1,026,000 648,000 594,000 - 37,294,320 - 151,499,880 - 229,738,320 - 229,738,320 31,368,800 66,943,600 90,897,600 90,843,600 - 50,244,000 - 14,852,000 - 8,848,000 -

- 18,875,200 52,091,600 82,049,600 90,843,600

2008 2009 2010 2011 50,244,000 65,096,000 73,944,000 73,944,000 50,244,000 65,096,000 73,944,000 73,944,000 - 50,244,000 - 65,096,000 - 73,944,000 - 73,944,000 50,244,000 65,096,000 73,944,000 73,944,000 50,244,000 14,852,000 8,848,000 0- 50,244,000 - 14,852,000 - 8,848,000 0

without new investment2012 Year 2006

1,872,000 Unit price 395.00 Unit Sold 1,500,000 739,440,000 COGS 213.30 Total Sales 592,500,000 399,297,600 opex 0.26*sale COGS 355,500,000 192,254,400 OPEX

5 0.06 1,080,000

620,940,000 163,814,400 328,197,600

2012 6

434,658,000 - 114,670,080 324,000 - 229,738,320 90,573,600 73,944,000 503,186,667 667,704,267

2012 73,944,000 73,944,000 - 73,944,000 73,944,000 - 73,944,000 73,944,000

2007 2008 2009 2010 2011 1,200,000 920,000 570,000 300,000 300,000 474,000,000 363,400,000 225,150,000 118,500,000 118,500,000 284,400,000 218,040,000 135,090,000 71,100,000 71,100,000 113,760,000 87,216,000 54,036,000 28,440,000 28,440,000

2012 Unit price 395.00 300,000 COGS 237.00 118,500,000 opex 0.24*sale 71,100,000 28,440,000

with new investment ($18M)Year 2006Unit Sold 1,500,000 Total Sales 592,500,000 COGSOPEX

Revenue increase byexpense increase byCOGS increase by

MACRS starting in 2008, buy in 2006 year5 year assetsdepreciation

Incremental Approach 2006 Year 0 Invest new investment - 18,000,000

AT Revenue increase AT Expense Increase TS on depreciation (new invest) AT COGS Increase After tax Net Cash Flows - 18,000,000 Cash flow from changes in NOWC Terminal valueTotal net cash flow - 18,000,000

0123456

Accept positive NPV NPV

Net Operating Working Capital and Cash Flow2006

InventoryAccounts Receivable

Accounts PayableNet Operating Working Capital - Changes in net working capital - Cash flow from changes in NOWC

2007 2008 2009 1,200,000 1,272,000 1,648,000 474,000,000 502,440,000 650,960,000 284,400,000 271,317,600 351,518,400 113,760,000 130,634,400 169,249,600

- 139,040,000 425,810,000 - 43,418,400 115,213,600 - 53,277,600 216,428,400

starting in 2008, buy in 2006 0 1 2

0.20 0.32 0.19 3,600,000 5,760,000 3,420,000

2007 2008 2009 1 2 3

- 97,328,000 298,067,000 - - 30,392,880 - 80,649,520 1,080,000 1,728,000 1,026,000 - - 37,294,320 - 151,499,880 1,080,000 31,368,800 66,943,600

- 50,244,000 - 14,852,000

1,080,000 - 18,875,200 52,091,600

18%- 18,000,000 1,080,000 915,254 - 18,875,200 - 13,555,875 52,091,600 31,704,556 82,049,600 42,320,271 90,843,600 39,708,575 667,704,267 247,338,719 330,431,500 348,431,500

2007 2008 2009 50,244,000 65,096,000 50,244,000 65,096,000

- 50,244,000 - 65,096,000 - 50,244,000 65,096,000

50,244,000 14,852,000 - 50,244,000 - 14,852,000

2010 2011 2012 1,872,000 1,872,000 1,872,000 739,440,000 739,440,000 739,440,000 399,297,600 399,297,600 399,297,600 192,254,400 192,254,400 192,254,400

620,940,000 620,940,000 620,940,000 163,814,400 163,814,400 163,814,400 328,197,600 328,197,600 328,197,600

3 4 5 0.12 0.11 0.06 2,160,000 1,980,000 1,080,000

2010 2011 2012 4 5 6

434,658,000 434,658,000 434,658,000 - 114,670,080 - 114,670,080 - 114,670,080 648,000 594,000 324,000 - 229,738,320 - 229,738,320 - 229,738,320 90,897,600 90,843,600 90,573,600 - 8,848,000 - 73,944,000

503,186,667 82,049,600 90,843,600 667,704,267

2010 2011 2012 73,944,000 73,944,000 0 73,944,000 73,944,000 0

- 73,944,000 - 73,944,000 0 73,944,000 73,944,000 - 8,848,000 0 - 73,944,000 - 8,848,000 0 73,944,000

without new investmentYear 2006

Unit price 395.00 Unit Sold 1,500,000 COGS 213.30 Total Sales 592,500,000 opex 0.26*sale COGS 355,500,000

OPEX

2007 2008 2009 2010 1,200,000 920,000 570,000 300,000 474,000,000 363,400,000 225,150,000 118,500,000 284,400,000 218,040,000 135,090,000 71,100,000 113,760,000 87,216,000 54,036,000 28,440,000

2011 2012 300,000 300,000 118,500,000 118,500,000 71,100,000 71,100,000 28,440,000 28,440,000

with new investment ($18M)Year 2006Unit Sold 1,500,000 Total Sales 592,500,000 COGSOPEX

Revenue increase byexpense increase byCOGS increase by

MACRS starting in 2008, buy in 2006 year5 year assetsdepreciation

Incremental Approach 2006 Year 0 Invest new investment - 18,000,000

AT Revenue increase AT Expense Increase TS on depreciation (new invest) AT COGS Increase After tax Net Cash Flows - 18,000,000 Cash flow from changes in NOWC Terminal valueTotal net cash flow - 18,000,000

0123456

Accept positive NPV NPV

Net Operating Working Capital and Cash Flow2006

InventoryAccounts Receivable

Accounts PayableNet Operating Working Capital - Changes in net working capital - Cash flow from changes in NOWC

2007 2008 2009 1,200,000 1,590,000 2,060,000 474,000,000 628,050,000 813,700,000 284,400,000 339,147,000 439,398,000 113,760,000 163,293,000 211,562,000

- 264,650,000 588,550,000 - 76,077,000 157,526,000 - 121,107,000 304,308,000

starting in 2008, buy in 2006 0 1 2

0.20 0.32 0.19 3,600,000 5,760,000 3,420,000

2007 2008 2009 1 2 3

- 185,255,000 411,985,000 - - 53,253,900 - 110,268,200 1,080,000 1,728,000 1,026,000 - - 84,774,900 - 213,015,600 1,080,000 48,954,200 89,727,200

- 62,805,000 - 18,565,000

1,080,000 - 13,850,800 71,162,200

21%- 18,000,000 1,080,000 915,254 - 13,850,800 - 9,947,429 71,162,200 43,311,512 105,718,000 54,528,168 116,724,000 51,021,136 763,426,857 282,797,386 404,626,027 422,626,027

2007 2008 2009 62,805,000 81,370,000 62,805,000 81,370,000

- 62,805,000 - 81,370,000 - 62,805,000 81,370,000

62,805,000 18,565,000 - 62,805,000 - 18,565,000

2010 2011 2012 2,340,000 2,340,000 2,340,000 924,300,000 924,300,000 924,300,000 499,122,000 499,122,000 499,122,000 240,318,000 240,318,000 240,318,000

805,800,000 805,800,000 805,800,000 211,878,000 211,878,000 211,878,000 428,022,000 428,022,000 428,022,000

3 4 5 0.12 0.11 0.06 2,160,000 1,980,000 1,080,000

2010 2011 2012 4 5 6

564,060,000 564,060,000 564,060,000 - 148,314,600 - 148,314,600 - 148,314,600 648,000 594,000 324,000 - 299,615,400 - 299,615,400 - 299,615,400 116,778,000 116,724,000 116,454,000 - 11,060,000 - 92,430,000

554,542,857 105,718,000 116,724,000 763,426,857

2010 2011 2012 92,430,000 92,430,000 0 92,430,000 92,430,000 0

- 92,430,000 - 92,430,000 0 92,430,000 92,430,000 - 11,060,000 0 - 92,430,000 - 11,060,000 0 92,430,000

without new investmentYear 2006

Unit price 395.00 Unit Sold 1,500,000 COGS 213.30 Total Sales 592,500,000 opex 0.26*sale COGS 355,500,000

OPEX

2007 2008 2009 2010 1,200,000 920,000 570,000 300,000 474,000,000 363,400,000 225,150,000 118,500,000 284,400,000 218,040,000 135,090,000 71,100,000 113,760,000 87,216,000 54,036,000 28,440,000

2011 2012 300,000 300,000 118,500,000 118,500,000 71,100,000 71,100,000 28,440,000 28,440,000

Discount 10% on the unit price

with new investment ($18M)Year 2006 2007Unit Sold 1,500,000 1,200,000 Total Sales 592,500,000 474,000,000 COGS 284,400,000 OPEX 113,760,000

MACRS starting in 2008, buy in 2006

year 05 year assets 0.20 depreciation 3,600,000

Revenue increase by - expense increase by - COGS increase by -

Incremental Approach 2006 2007 Year 0 1 Invest new investment - 18,000,000

AT Revenue increase - AT Expense Increase - TS on depreciation (new invest) 1,080,000 AT COGS Increase - After tax Net Cash Flows - 18,000,000 1,080,000 Cash flow from changes in NOWC Terminal valueTotal net cash flow - 18,000,000 1,080,000

2006 2007InventoryAccounts ReceivableAccounts PayableNet Operating Working Capital - - Changes in net working capital - Cash flow from changes in NOWC

18%0 - 18,000,000 1 1,080,000 915,254 2 - 40,103,290 - 28,801,558 3 30,869,040 18,787,851 4 58,945,260 30,403,309

5 68,845,260 30,092,898 6 532,735,927 197,342,189

NPV 230,739,943 248,739,943

2006 2007 Year 0 1 Invest new machine - 18,000,000 Revenue 474,000,000 Less: COGS 284,400,000 Less: Operating Expense 113,760,000

Less: Depresiation Expense 3,600,000 Income before Tax 72,240,000

Less Tax 30% 21,672,000 Income after Tax 93,912,000

plus depre exp 3,600,000 After tax Net Cash Flows 97,512,000 NOWC -

Terminal CF

Total cash flow in last period - 18,000,000 97,512,000

18%0 - 18,000,000 1 97,512,000 82,637,288 2 44,622,090 32,046,890 3 115,549,560 70,327,030 4 140,798,340 72,622,217 5 - 150,806,340 - 65,918,841 6 1,073,576,340 397,686,536

NPV 571,401,120 589,401,120

2008 2009 2010 2011 1,590,000 2,060,000 2,340,000 2,340,000 565,245,000 732,330,000 831,870,000 831,870,000 339,147,000 439,398,000 499,122,000 499,122,000 146,963,700 190,405,800 216,286,200 216,286,200

1 2 3 4 0.32 0.19 0.12 0.11 5,760,000 3,420,000 2,160,000 1,980,000

201,845,000 507,180,000 713,370,000 713,370,000 59,747,700 136,369,800 187,846,200 187,846,200 121,107,000 304,308,000 428,022,000 428,022,000

2008 2009 2010 2011 2 3 4 5

141,291,500 355,026,000 499,359,000 499,359,000 - 41,823,390 - 95,458,860 - 131,492,340 - 131,492,340 1,728,000 1,026,000 648,000 594,000 - 84,774,900 - 213,015,600 - 299,615,400 - 299,615,400 16,421,210 47,577,540 68,899,260 68,845,260 - 56,524,500 - 16,708,500 - 9,954,000 -

- 40,103,290 30,869,040 58,945,260 68,845,260

2008 2009 2010 2011 56,524,500 73,233,000 83,187,000 83,187,000 56,524,500 73,233,000 83,187,000 83,187,000 - 56,524,500 - 73,233,000 - 83,187,000 - 83,187,000 56,524,500 73,233,000 83,187,000 83,187,000 56,524,500 16,708,500 9,954,000 0- 56,524,500 - 16,708,500 - 9,954,000 0

2008 2009 2010 2011 2 3 4 5

565,245,000 732,330,000 831,870,000 831,870,000 339,147,000 439,398,000 499,122,000 499,122,000 146,963,700 190,405,800 216,286,200 216,286,200

5,760,000 3,420,000 2,160,000 1,980,000 73,374,300 99,106,200 114,301,800 114,481,800

22,012,290 29,731,860 34,290,540 34,344,540 95,386,590 128,838,060 148,592,340 148,826,340

5,760,000 3,420,000 2,160,000 1,980,000 101,146,590 132,258,060 150,752,340 150,806,340 - 56,524,500 - 16,708,500 - 9,954,000 -

44,622,090 115,549,560 140,798,340 150,806,340

2012 2,340,000 Unit price 355.50 831,870,000 COGS 191.97 499,122,000 opex 0.26*sale 216,286,200

5 Question 3(b) how long the unit price if profit margin is 0 0.06 Original Unit Price With new Investment 1,080,000 Unit price

COGS 713,370,000 opex 187,846,200 428,022,000

2012 Incremental Approach 6 Year

Sale price

Units Sold 499,359,000 /-COGS - 131,492,340 -/- OPEX 324,000 depreciation- 299,615,400 Earning before interest and tax

68,575,260 83,187,000 Incremental Approach 380,973,667 Year 532,735,927 Sale price

Units Sold

2012 SG&A-DEPRE 83,187,000 Earning before interest and tax 83,187,000 - 83,187,000 83,187,000 - 83,187,000 Year 83,187,000 Invest new machine

Revenue Less: COGS Less: Operating Expense

Less: Depresiation Expense Income before Tax

Less Tax 30% Income after Tax

plus depre exp After tax Net Cash Flows NOWC

Terminal CF

2012 Total cash flow in last period

6

831,870,000 0 499,122,000 1 216,286,200 2 1,080,000 3 115,381,800 4 34,614,540 5 149,996,340 6 1,080,000 NPV 151,076,340 83,187,000

839,313,000 NOWC 1,073,576,340 Inventory

Accounts ReceivableAccounts PayableNet Operating Working CapitalChanges in net working capitalCash flow from changes in NOWC

without new investmentYear 2006 2007 2008 2009 Unit Sold 1,500,000 1,200,000 920,000 570,000 Total Sales 592,500,000 474,000,000 363,400,000 225,150,000 COGS 355,500,000 284,400,000 218,040,000 135,090,000 OPEX 113,760,000 87,216,000 54,036,000

Question 3(b) how long the unit price if profit margin is 0 with new investment ($18M) Original Unit Price With new Investment Year

395.00 Unit Sold 213.30 Total Sales 0.26*sale COGS

OPEX

2007 2008 2009 2010 2011 1 2 3 4 5 x x x x x

1,200,000 1,590,000 2,060,000 2,340,000 2,340,000 284,400,000 339,147,000 439,398,000 499,122,000 499,122,000 113,760,000 163,293,000 211,562,000 240,318,000 240,318,000 3,600,000 5,760,000 3,420,000 2,160,000 1,980,000

0 0 0 0 0

2007 2008 2009 2010 2011 1 2 3 4 5 319.1137320977 319.1137320977 319.1137320977 319.1137320977 319.1137320977 1,200,000 1,590,000 2,060,000 2,340,000 2,340,000 401,760,000 508,200,000 654,380,000 741,600,000 741,420,000 - 18,823,521 - 809,166 2,994,288 5,126,133 5,306,133

2006 2007 2008 2009 20100 1 2 3 4

- 18,000,000 382,936,479 507,390,834 657,374,288 746,726,133 284,400,000 339,147,000 439,398,000 499,122,000 113,760,000 163,293,000 211,562,000 240,318,000

3,600,000 5,760,000 3,420,000 2,160,000 - 18,823,521 - 809,166 2,994,288 5,126,133

- 5,647,056 - 242,750 898,286 1,537,840 - 24,470,578 - 1,051,916 3,892,575 6,663,973

3,600,000 5,760,000 3,420,000 2,160,000 - 20,870,578 4,708,084 7,312,575 8,823,973

- 38,293,648 - 12,445,436 - 14,998,345

- 18,000,000 - 20,870,578 - 33,585,564 - 5,132,861 - 6,174,372

18%- 18,000,000 - 20,870,578 - 17,686,930 - 33,585,564 - 24,120,629 - 5,132,861 - 3,124,018 - 6,174,372 - 3,184,673 - 8,877,973 - 3,880,644 134,642,659 49,875,887 - 20,121,006 - 2,121,006

2006 2007 2008 2009 2010 38,293,648 50,739,083 65,737,429 38,293,648 50,739,083 65,737,429 - 38,293,648 - 50,739,083 - 65,737,429

- - 38,293,648 50,739,083 65,737,429 - 38,293,648 12,445,436 14,998,345

- 38,293,648 - 12,445,436 - 14,998,345

2010 2011 2012 Unit price 300,000 300,000 300,000 COGS 118,500,000 118,500,000 118,500,000 opex 71,100,000 71,100,000 71,100,000 28,440,000 28,440,000 28,440,000

with new investment ($18M)2007 2008 2009 2010

1,200,000 1,590,000 2,060,000 2,340,000 474,000,000 628,050,000 813,700,000 924,300,000 284,400,000 339,147,000 439,398,000 499,122,000 113,760,000 163,293,000 211,562,000 240,318,000

2012 6 x

2,340,000 499,122,000 240,318,000 1,080,000

0

2012 6 319.1137320977 319.1137320977 2,340,000 11,870,000

740,520,000 3,787,880,000 6,206,133 -

2011 2012 5 6

746,726,133 746,726,133 499,122,000 499,122,000 240,318,000 240,318,000

1,980,000 1,080,000 5,306,133 6,206,133

1,591,840 1,861,840 6,897,973 8,067,973

1,980,000 1,080,000 8,877,973 9,147,973 - 74,672,613

50,822,072

8,877,973 134,642,659

2011 2012 74,672,613 74,672,613 74,672,613 74,672,613 - 74,672,613 - 74,672,613 74,672,613 74,672,613 8935184.49874 - 74,672,613

0 74,672,613

395.00 237.00 0.24*sale

2011 2012 2,340,000 2,340,000 924,300,000 924,300,000 499,122,000 499,122,000 240,318,000 240,318,000