Blooper’s analysts have come up with the following revised estimates for its mag

Question

Blooper’s analysts have come up with the following revised estimates for its magnoosium mine:

Range

Conduct a sensitivity analysis for each variable and range and compute the NPV for each. Use Spreadsheet 10.1 and accompanying data as a starting point for the analysis. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Enter your answers in thousands rounded to the nearest whole dollar.)

Initial Investments Pessimistic Expected Optimistic

Revenues

Variable Costs

Fixed Costs

Working Capital

Spreadsheet:

Range

Pessimistic Optimistic Initial investment + 25 % – 20 % Revenues – 25 % + 15 % Variable costs + 20 % – 25 % Fixed cost + 25 % – 45 % Working capital + 25 % – 45 %

Explanation / Answer

Amount in $ Particulars Expected Pessimistic Optimistic Initial investment 10000 12500 8000 Revenues 15000 11250 17250 Variable costs 6000 7200 4500 Fixed cost 4000 5000 2200 Working capital (*) 2505 3131.25 1377.75 (*) Working Capital = (Receivables + Inventory) i.e. W.C. = [ (15000*16.70%) + (10000*15%) ] i.e. W.C. = $ 2505 Cash Inflow Revenue 15000 11250 17250 (-) Variable Cost 6000 7200 4500 (-) Fixed Cost 4000 5000 2200 PBT 5000 -950 10550 Tax @ 35% 1750 0 3692.5 PAT 3250 -950 6857.5 Operating Cash flow 4650 800 7627.5 Salvage Value 2000 2000 2000 Working Capital 2505 3131.25 1377.75 Cash Inflow 9155 5931.25 11005.25 PV Factor of 12% 0.893 0.893 0.893 PV of Cash Inflow 8175.415 5296.606 9827.688 Cash Outflow Cash Outflow (Initial Investment + Working Capital) 12505 15631.25 9377.75 NPV (PV of Cash Inflow - Cash Outflow) -4329.59 -10334.6 449.9383

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