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Diaper Case Study

This document summarizes the costs, revenues, and cash flows for a regular diaper production project over 10 years. It shows investments in equipment of $10 million in year 0. Revenues are $116 million per year from sales of 20 million diapers priced at $6 each. Operating costs are $104 million per year. The net present value of the project's cash flows is estimated to be $88.05 million using an 8% discount rate.

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Abhijeet Sarode
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114 views5 pages

Diaper Case Study

This document summarizes the costs, revenues, and cash flows for a regular diaper production project over 10 years. It shows investments in equipment of $10 million in year 0. Revenues are $116 million per year from sales of 20 million diapers priced at $6 each. Operating costs are $104 million per year. The net present value of the project's cash flows is estimated to be $88.05 million using an 8% discount rate.

Uploaded by

Abhijeet Sarode
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Lightweight

No of units 25000000.00
Selling price 4.00
No of days 300.00

Cost factor Cost/Rate Value Remark


Material 2.40
Labour 0.20
Variable Manufacturing
overheads 0.60
Fixed overheads 0.40
Incremental cost of prod. 3.20 Fixed ov excl

Material 2.40 3000000.00


WIP 2.72 3400000.00
FG 3.60 4500000.00 Fixed ov incl
Credit period (AR) 4.00 10000000.00
Working capital Total Working capital 20900000.00
Interest 0.16 3344000.00
Taxes 0.30 6270000.00
Total expense 9614000.00 Interest + tax
Expense per unit 0.38
Regular

No of units 20000000.00
Selling price 5.80
No of days 300.00

Cost factor Cost/Rate Value Remark


Material 3.40
Labour 0.40
Variable Manufacturing
overheads 0.90
Fixed overheads 0.50
Incremental cost of prod. 4.70 Fixed ov excl

Assumptions
Fixed mfg overheads already includes fixed cost included in the balance shet

Long term
cost equipment cost (dep) 10000000.00 1000000.00
Dep/unit 1000000.00 0.05
Fixed overheads 0.50
total long term cost/unit 0.55
Regular Diaper

Year 0 Year 1 Year 2 Year 3


Investments
1 Quality machine -10000000
2 acc dep 1000000 1000000 1000000
3 Adjusted machine book value 9000000 8000000 7000000
4 opportunity cost -warehouse -8600000
7 total cash flow of investment (1+4) -18600000 0 0 0

Income
8 Sales Revenue 116000000 116000000 116000000
9 Operating costs -104000000 -104000000 -104000000
10 Depreciation -1000000 -1000000 -1000000
11 PBT (8+9+10) 11000000 11000000 11000000
12 Tax @ 30 % 3300000 3300000 3300000
13 Net income 7700000 7700000 7700000

Incremental Cash flows Year 0 Year 1 Year 2 Year 3


1 Sales Revenue 116000000 116000000 116000000
2 Operating costs -104000000 -104000000 -104000000
3 Taxes 3300000 3300000 3300000
4 OCF (1+2+3) 15300000 15300000 15300000
5 Total cash flow from investment -18600000 0 0 0
6 Total cash flow of project (4+5) -18600000 15300000 15300000 15300000

NPV@ 8.00% 88047709


10% deprication

Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year


1
2
1000000 1000000 1000000 1000000 1000000 1000000 1000000 3
6000000 5000000 4000000 3000000 2000000 1000000 0 4
8600000 5
0 0 0 0 0 0 8600000 6
7
8
116000000 116000000 116000000 116000000 116000000 116000000 116000000 9
-104000000 -104000000 -104000000 -104000000 -104000000 -104000000 -104000000 10
-1000000 -1000000 -1000000 -1000000 -1000000 -1000000 -1000000
11000000 11000000 11000000 11000000 11000000 11000000 11000000
3300000 3300000 3300000 3300000 3300000 3300000 3300000
7700000 7700000 7700000 7700000 7700000 7700000 7700000
-1
Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
116000000 116000000 116000000 116000000 116000000 116000000 116000000
-104000000 -104000000 -104000000 -104000000 -104000000 -104000000 -104000000
3300000 3300000 3300000 3300000 3300000 3300000 3300000
15300000 15300000 15300000 15300000 15300000 15300000 15300000
0 0 0 0 0 0 8600000
15300000 15300000 15300000 15300000 15300000 15300000 23900000
Quantity sold Price Sales revenues cost per unit operating costs
20000000 6 116000000 5 104000000
20000000 6 116000000 5 104000000
20000000 6 116000000 5 104000000
20000000 6 116000000 5 104000000
20000000 6 116000000 5 104000000
20000000 6 116000000 5 104000000
20000000 6 116000000 5 104000000
20000000 6 116000000 5 104000000
20000000 6 116000000 5 104000000
20000000 6 116000000 5 104000000

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