Case Analysis
Case Analysis
Case Analysis
Answer 1: The relevant cash flows are that which should be included in a capital budgeting
analysis that will only occur if the project is accepted. In this case of Sneakers 2013, the below are
the relevant cash flows:
Answer 2:
2012 (Year 0)
Investments:
1 Factory outlay -15,00,00,000
2 Equipment -1,50,00,000
3 Freight and Installation of the Equipment -50,00,000
4 Inventory increased (CA) -1,50,00,000
5 Accounts Payable increased (CL) 50,00,000
6 Net working capital (CA-CL) 1,00,00,000
7 Change in net working capital -1,00,00,000
Total Intial Investment (Factory
8 outlay+equipment+F&I+change in net working capital -18,00,00,000
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Question 3: What are the project’s annual net operating cash flows for the year (2013-2018)?
Answer 3:
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2013 2014 2015 2016 2017 2018
Total Sales 13,80,00,000 18,40,00,000 16,10,00,000 27,60,00,000 20,70,00,000 10,35,00,000
Calculation for Lost sales 35*(1-0.4) 15*(1-0.4)
Lost Sales
(Canabalization) -2,10,00,000 -90,00,000
Increase in Particulars
because of this Project:
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Question 4: What is the project terminal cash flows?
Answer 4:
Current Assets
Accounts Receivable = 8% of Revenue = 0.08* 117000000 93,60,000
Inventory = 25% of variable cost = 0.25* 64350000 1,60,87,500
Current Liabilities
Accounts Payable = 20% of variable cost = 0.2* 64350000 1,28,70,000
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Question 5: Evaluate the project using the NPV, IRR, Payback, PI and discounted payback
methods.
Answer 5:
Cash Flow ( in $
Year million)
0 -180
1 12.8035
2 38.41
3 36.41
4 54.18
5 38.95
6 76.7355
IRR= 9%
PI=
Year 2013 2014 2015 2016 2017 2018
Cash flows 12.8035 38.41 36.41 54.18 38.95 76.7355
Discount rate 11% 11% 11% 11% 11% 11%
Net of PV ₹ 169.16
Initial Investment 180
PI= ₹ 0.94
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