Simon North planned to build a funeral home on his land, but he made a mistake

would have kept renting the land if the funeral home idea didn't work out, it's imp
looked at, including the value of things we own. The land has value, and by not
overstated if the value was not included. It's like forgetting about the value of a r
accurate assessment of whether building the funeral home is a good idea financ
 6-11: Comparison of Make Versus Buy with Combined Cash

Current Information Potential change

Units 200,000 Machine
Cost/Unit $ 2.00 Cost/Unit $ 1.50 Life
Depreciable Life
Depreciation
Discount Rate 15% Tax Rate 21%

IN HOUSE LIDS

0 1 2 3 4 5
$400,000 $ 400,000 $400,000 $400,000 $ 400,000
$ (150,000) $300,000 $ 300,000 $300,000 $300,000 $ 300,000
Gross Profit $ (150,000) $100,000 $ 100,000 $100,000 $100,000 $ 100,000
Deprec/Amort
EBIT $ (150,000) $100,000 $ 100,000 $100,000 $100,000 $ 100,000
Tax $ 31,500 $(21,000) $ (21,000) $(21,000) $(21,000) $ (21,000)
NOPAT $ (118,500) $ 79,000 $ 79,000 $ 79,000 $ 79,000 $ 79,000
Deprec/Amort
OCF $ (118,500) $ 79,000 $ 79,000 $ 79,000 $ 79,000 $ 79,000
 WC Balance $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000
Change in WC $ (30,000) $ - $ - $ - $ - $ -

CAPEX
Free Cash Flow $ (148,500) $ 79,000 $ 79,000 $ 79,000 $ 79,000 $ 79,000

NPV $ 255,398.26

As the NPV is positive, maybe the plant manager should proceed with making in-house lids.
Combined Cash Flows

Working Capital
$150,000 Year 0 $ 30,000
$ 10 Year 10 $ -
$ 7
$ 15,000

6 7 8 9 10
$400,000 $400,000 $400,000 $400,000 $400,000
$300,000 $300,000 $300,000 $300,000 $300,000
$100,000 $100,000 $100,000 $100,000 $100,000

$100,000 $100,000 $100,000 $100,000 $100,000

$(21,000) $(21,000) $(21,000) $(21,000) $(21,000)
$ 79,000 $ 79,000 $ 79,000 $ 79,000 $ 79,000

$ 79,000 $ 79,000 $ 79,000 $ 79,000 $ 79,000

$ 30,000 $ 30,000 $ 30,000 $ 30,000
$ - $ - $ - $ - $ 30,000

$ 79,000 $ 79,000 $ 79,000 $ 79,000 $109,000

 6-13: United Pigpen withending rent and WC as % of nex

Assets: Long-Term Working Capital

Equipment Purchase $1,200,000 WC0 $350,000
Equipment Sale $400,000 WC 10%
Lost Rent Yr 1 $100,000 Depreciation
Straight 10
Inflation 4% Depreciation $120,000

TAKE 1 0 1 2 3
Revenue $ 4,200,000.00 $ 4,410,000.00 $ 4,630,500.00
Variable Costs ### ### ###
Gross Profit $ 420,000.00 $ 441,000.00 $ 463,050.00
Fixed Costs
Opportunity Cost $ (100,000.00) $ (104,000.00) $ (108,160.00)
Deprec/Amort $ (120,000.00) $ (120,000.00) $ (120,000.00)
EBIT $ - $ 200,000.00 $ 217,000.00 $ 234,890.00
Tax $ - $ (50,000.00) $ (54,250.00) $ (58,722.50)
NOPAT $ - $ 150,000.00 $ 162,750.00 $ 176,167.50
Deprec/Amort $ 120,000.00 $ 120,000.00 $ 120,000.00
OCF $ - $ 270,000.00 $ 282,750.00 $ 296,167.50
WC Balance $ 350,000.00 $ 441,000.00 $ 463,050.00 $ 486,202.50
Change in WC $ (350,000.00) $ (91,000.00) $ (22,050.00) $ (23,152.50)

CAPEX $ (1,200,000.00)
Free Cash Flows $ (1,550,000.00) $ 179,000.00 $ 260,700.00 $ 273,015.00

NPV $ 207,023.25

TAKE 2 0 1 2 3
Revenue $ 4,200,000.00 $ 4,410,000.00 $ 4,630,500.00
Variable Costs ### ### ###
Gross Profit $ 420,000.00 $ 441,000.00 $ 463,050.00
Fixed Costs
Opportunity Cost $ (100,000.00) $ (104,000.00) $ (108,160.00) $ (112,486.40)
Deprec/Amort $ (120,000.00) $ (120,000.00) $ (120,000.00)
 EBIT $ (100,000.00) $ 196,000.00 $ 212,840.00 $ 230,563.60
Tax $ 25,000.00 $ (49,000.00) $ (53,210.00) $ (57,640.90)
NOPAT $ (75,000.00) $ 147,000.00 $ 159,630.00 $ 172,922.70
Deprec/Amort $ 120,000.00 $ 120,000.00 $ 120,000.00
OCF $ (75,000.00) $ 267,000.00 $ 279,630.00 $ 292,922.70

WC Balance $350,000 $ 420,000.00 $ 441,000.00 $ 463,050.00

Change in WC $ (350,000.00) $ (70,000.00) $ (21,000.00) $ (22,050.00)

CAPEX -$1,200,000
Free Cash Flows $ (1,625,000.00) $ 197,000.00 $ 258,630.00 $ 270,872.70

NPV $ 168,390.64
d WC as % of next year's revenues (H-Mo's Preference)

Income Information Sale

Revenues $4,200,000 BVT $240,000
Growth 5% Gain(Loss) $160,000
VC % 90% Tax $40,000
Tax Rate 25% Net CF $360,000
Discount Rate 12%

4 5 6 7 8
$ 4,862,025.00 $ 5,105,126.25 $ 5,360,382.56 $ 5,628,401.69 $ 5,909,821.78
### ### ### ### ###
$ 486,202.50 $ 510,512.63 $ 536,038.26 $ 562,840.17 $ 590,982.18

$ (112,486.40) $ (116,985.86) $ (121,665.29) $ (126,531.90) $ (131,593.18)

$ (120,000.00) $ (120,000.00) $ (120,000.00) $ (120,000.00) $ (120,000.00)
$ 253,716.10 $ 273,526.77 $ 294,372.97 $ 316,308.27 $ 339,389.00
$ (63,429.02) $ (68,381.69) $ (73,593.24) $ (79,077.07) $ (84,847.25)
$ 190,287.07 $ 205,145.08 $ 220,779.72 $ 237,231.20 $ 254,541.75
$ 120,000.00 $ 120,000.00 $ 120,000.00 $ 120,000.00 $ 120,000.00
$ 310,287.07 $ 325,145.08 $ 340,779.72 $ 357,231.20 $ 374,541.75
$ 510,512.63 $ 536,038.26 $ 562,840.17 $ 590,982.18 $ -
$ (24,310.13) $ (25,525.63) $ (26,801.91) $ (28,142.01) $ 590,982.18

$ 360,000.00
$ 285,976.95 $ 299,619.45 $ 313,977.81 $ 329,089.19 $ 1,325,523.93

4 5 6 7 8
$ 4,862,025.00 $ 5,105,126.25 $ 5,360,382.56 $ 5,628,401.69 $ 5,909,821.78
### ### ### ### ###
$ 486,202.50 $ 510,512.63 $ 536,038.26 $ 562,840.17 $ 590,982.18

$ (116,985.86) $ (121,665.29) $ (126,531.90) $ (131,593.18) -

$ (120,000.00) $ (120,000.00) $ (120,000.00) $ (120,000.00) $ (120,000.00)
$ 249,216.64 $ 268,847.33 $ 289,506.35 $ 311,246.99 $ 470,982.18
$ (62,304.16) $ (67,211.83) $ (72,376.59) $ (77,811.75) $ (117,745.54)
$ 186,912.48 $ 201,635.50 $ 217,129.77 $ 233,435.24 $ 353,236.63
$ 120,000.00 $ 120,000.00 $ 120,000.00 $ 120,000.00 $ 120,000.00
$ 306,912.48 $ 321,635.50 $ 337,129.77 $ 353,435.24 $ 473,236.63

$ 486,202.50 $ 510,512.63 $ 536,038.26 $ 562,840.17

$ (23,152.50) $ (24,310.13) $ (25,525.63) $ (26,801.91) $562,840.17

$360,000
$ 283,759.98 $ 297,325.38 $ 311,604.13 $ 326,633.33 $ 1,396,076.80
 6-14: Imperial M

Assets: Long-Term Opportunity Cost

Equipment Purchase ¥4,000,000,000 Lost Rent
Sale Price Real ¥500,000,000
Sale Price Nominal ¥670,047,820.31 Rates
Useful Life 5 Discount Rate
Depreciation ¥800,000,000 Tax Rate
Gain/Loss on Sale ¥670,047,820.31 Inflation
Tax on Sale ¥167,511,955.08
Cash Flow from Sale ¥502,535,865.23
BVT ¥0.00
0 1 2
Revenue ¥ 6,500,000,000.00
Variable Costs ¥ -1,800,000,000.00
Gross Profit ¥ 4,700,000,000.00
Labor (Fixed) ¥ -1,100,000,000.00 ¥ -1,177,000,000.00
Opportunity Cost ¥ -300,000,000.00 ¥ -300,000,000.00 ¥ -300,000,000.00
Deprec/Amort ¥ -800,000,000.00 ¥ -800,000,000.00
EBIT ¥ -300,000,000.00 ¥ -2,200,000,000.00 ¥ 2,423,000,000.00
Tax ¥ 75,000,000.00 ¥ 550,000,000.00 ¥ -605,750,000.00
NOPAT ¥ -225,000,000.00 ¥ -1,650,000,000.00 ¥ 1,817,250,000.00
Deprec/Amort ¥ 800,000,000.00 ¥ 800,000,000.00
OCF ¥ -225,000,000.00 ¥ -850,000,000.00 ¥ 2,617,250,000.00
 CAPEX ¥ -4,000,000,000.00
Free Cash Flow ¥ -4,225,000,000.00 ¥ -850,000,000.00 ¥ 2,617,250,000.00

NPV ¥ 4,248,673,299.62
 6-14: Imperial Motors

Opportunity Cost Income Information

¥300,000,000 # of cars 100,000
begin Sale Price ¥65,000
Rates price growth 4%
12.00% Cost per Unit ¥18,000.00
25.00% cost growth 3%
5.00%

3 4 5 6
¥ 6,760,000,000.00 ¥ 7,030,400,000.00 ¥ 7,311,616,000.00 ¥ 7,604,080,640.00
¥ -1,854,000,000.00 ¥ -1,909,620,000.00 ¥ -1,966,908,600.00 ¥-2,025,915,858.00
¥ 4,906,000,000.00 ¥ 5,120,780,000.00 ¥ 5,344,707,400.00 ¥ 5,578,164,782.00
¥ -1,259,390,000.00 ¥ -1,347,547,300.00 ¥ -1,441,875,611.00 ¥-1,542,806,903.77
¥ -300,000,000.00 ¥ -300,000,000.00 ¥ -300,000,000.00
¥ -800,000,000.00 ¥ -800,000,000.00 ¥ -800,000,000.00
¥ 2,546,610,000.00 ¥ 2,673,232,700.00 ¥ 2,802,831,789.00 ¥ 4,035,357,878.23
¥ -636,652,500.00 ¥ -668,308,175.00 ¥ -700,707,947.25 ¥-1,008,839,469.56
¥ 1,909,957,500.00 ¥ 2,004,924,525.00 ¥ 2,102,123,841.75 ¥ 3,026,518,408.67
¥ 800,000,000.00 ¥ 800,000,000.00 ¥ 800,000,000.00 ¥ -
¥ 2,709,957,500.00 ¥ 2,804,924,525.00 ¥ 2,902,123,841.75 ¥ 3,026,518,408.67
 ¥ 502,535,865.23
¥ 2,709,957,500.00 ¥ 2,804,924,525.00 ¥ 2,902,123,841.75 ¥ 3,529,054,273.91
Income Information
Labor ¥1,100,000,000
Growth in Labor 7.00%
 6-19 Depreciation on Kiln

Kiln $ 400,000.00
Installation $ 50,000.00 Tax deductible expense or capital investment?
Just Kiln $ 350,000.00
If Capital 5 years
Tax Rate 25.00%
rate 5.00%

If Expensed:
0 1
installation $ 50,000.00

Final Cost $ 12,500.00

If Capitalized: 0 1
installation $ 10,000.00
$ 2,500.00
Final Cost NPV $10,823.69

Difference $ 1,676.31

It is better to write off the taxes upfront rather than to spread it across the fu
 depreciation $10,000.00
r capital investment?

2 3 4 5

2 3 4 5
$ 10,000.00 $ 10,000.00 $ 10,000.00 $ 10,000.00
$ 2,500.00 $ 2,500.00 $ 2,500.00 $ 2,500.00

spread it across the future.