Water Well Valuation Example

Assumptions Discounted Cash flow

Discount rate 5% DCF $6,574.04
Cash flow/day $2.00

Year CF PV[CF] How much money come in

1 200 $190.48 How many month come in
2 200 $181.41 How much risk will be discount
3 200 $172.77 $1,827.23
4 200 $164.54
5 200 $156.71
6 200 $149.24
7 200 $142.14
8 200 $135.37
9 200 $128.92
10 200 $122.78
11 200 $116.94
12 200 $111.37
13 200 $106.06
14 200 $101.01
15 200 $96.20
16 200 $91.62
17 200 $87.26
18 200 $83.10
19 200 $79.15
20 200 $75.38
21 200 $71.79
22 200 $68.37
23 200 $65.11
24 200 $62.01
25 200 $59.06
26 200 $56.25
27 200 $53.57
28 200 $51.02
29 200 $48.59
30 730 $168.91
31 730 $160.86
32 730 $153.20
33 730 $145.91
34 730 $138.96
35 730 $132.34
36 730 $126.04
37 730 $120.04
38 730 $114.32
39 730 $108.88
40 730 $103.69
41 730 $98.76
42 730 $94.05
43 730 $89.57
44 730 $85.31
45 730 $81.25
46 730 $77.38
47 730 $73.69
48 730 $70.18
49 730 $66.84
50 730 $63.66
51 730 $60.63
52 730 $57.74
53 730 $54.99
54 730 $52.37
55 730 $49.88
56 730 $47.50
57 730 $45.24
58 730 $43.09
59 730 $41.03
60 730 $39.08
61 730 $37.22
62 730 $35.45
63 730 $33.76
64 730 $32.15
65 730 $30.62
66 730 $29.16
67 730 $27.77
68 730 $26.45
69 730 $25.19
70 730 $23.99
71 730 $22.85
72 730 $21.76
73 730 $20.73
74 730 $19.74
75 730 $18.80
76 730 $17.90
77 730 $17.05
78 730 $16.24
79 730 $15.47
80 730 $14.73
81 730 $14.03
82 730 $13.36
83 730 $12.72
 84 730 $12.12
85 730 $11.54
86 730 $10.99
87 730 $10.47
88 730 $9.97
89 730 $9.49
90 730 $9.04
91 730 $8.61
92 730 $8.20
93 730 $7.81
94 730 $7.44
95 730 $7.08
96 730 $6.75
97 730 $6.43
98 730 $6.12
99 730 $5.83
100 730 $5.55
101 730 $5.29
102 730 $5.04
103 730 $4.80
104 730 $4.57
105 730 $4.35
106 730 $4.14
107 730 $3.95
108 730 $3.76
109 730 $3.58
110 730 $3.41
111 730 $3.25
112 730 $3.09
113 730 $2.94
114 730 $2.80
115 730 $2.67
116 730 $2.54
117 730 $2.42
118 730 $2.31
119 730 $2.20
120 730 $2.09
121 730 $1.99
122 730 $1.90
123 730 $1.81
124 730 $1.72
125 730 $1.64
126 730 $1.56
127 730 $1.49
128 730 $1.42
129 730 $1.35
130 730 $1.28
131 730 $1.22
132 730 $1.17
133 730 $1.11
134 730 $1.06
135 730 $1.01
136 730 $0.96
137 730 $0.91
138 730 $0.87
139 730 $0.83
140 730 $0.79
141 730 $0.75
142 730 $0.72
143 730 $0.68
144 730 $0.65
145 730 $0.62
146 730 $0.59
147 730 $0.56
148 730 $0.53
149 730 $0.51
150 730 $0.48
151 730 $0.46
152 730 $0.44
153 730 $0.42
154 730 $0.40
155 730 $0.38
156 730 $0.36
157 730 $0.34
158 730 $0.33
159 730 $0.31
160 730 $0.30
161 730 $0.28
162 730 $0.27
163 730 $0.26
164 730 $0.24
165 730 $0.23
166 730 $0.22
167 730 $0.21
168 730 $0.20
169 730 $0.19
170 730 $0.18
171 730 $0.17
172 730 $0.17
173 730 $0.16
174 730 $0.15
175 730 $0.14
176 730 $0.14
177 730 $0.13
178 730 $0.12
179 730 $0.12
180 730 $0.11
181 730 $0.11
182 730 $0.10
183 730 $0.10
184 730 $0.09
185 730 $0.09
186 730 $0.08
187 730 $0.08
188 730 $0.08
189 730 $0.07
190 730 $0.07
191 730 $0.07
192 730 $0.06
193 730 $0.06
5
 1500

Interest Annual 7%
Principle
Year Payment Interest Balance
Payment
0 $90,000
1 $18,000 $6,300 $11,700 $78,300
2 $18,000 $5,481 $12,519 $65,781
3 $18,000 $4,605 $13,395 $52,386
4 $18,000 $3,667 $14,333 $38,053
5 $18,000 $2,664 $15,336 $22,716
6 $18,000 $1,590 $16,410 $6,306
 Annual Monthly
Discount Rate 15% 1.17% Value $32,131

Period Cashflow PV[CF]

1 $500 $494 500 per month with 10 years with annual 15% annual c
2 $500 $488
3 $500 $483
4 $500 $477
5 $500 $472
6 $500 $466
7 $500 $461
8 $500 $456
9 $500 $450
10 $500 $445
11 $500 $440
12 $500 $435
13 $500 $430
14 $500 $425
15 $500 $420
16 $500 $415
17 $500 $410
18 $500 $405
19 $500 $401
20 $500 $396
21 $500 $392
22 $500 $387
23 $500 $383
24 $500 $378
25 $500 $374
26 $500 $369
27 $500 $365
28 $500 $361
29 $500 $357
30 $500 $353
31 $500 $348
32 $500 $344
33 $500 $340
34 $500 $337
35 $500 $333
36 $500 $329
37 $500 $325
38 $500 $321
39 $500 $317
40 $500 $314
41 $500 $310
42 $500 $307
43 $500 $303
44 $500 $300
45 $500 $296
46 $500 $293
47 $500 $289
48 $500 $286
49 $500 $283
50 $500 $279
51 $500 $276
52 $500 $273
53 $500 $270
54 $500 $267
55 $500 $263
56 $500 $260
57 $500 $257
58 $500 $254
59 $500 $252
60 $500 $249
61 $500 $246
62 $500 $243
63 $500 $240
64 $500 $237
65 $500 $235
66 $500 $232
67 $500 $229
68 $500 $226
69 $500 $224
70 $500 $221
71 $500 $219
72 $500 $216
73 $500 $214
74 $500 $211
75 $500 $209
76 $500 $206
77 $500 $204
78 $500 $202
79 $500 $199
80 $500 $197
81 $500 $195
82 $500 $192
83 $500 $190
84 $500 $188
85 $500 $186
 86 $500 $184
87 $500 $182
88 $500 $179
89 $500 $177
90 $500 $175
91 $500 $173
92 $500 $171
93 $500 $169
94 $500 $167
95 $500 $165
96 $500 $163
97 $500 $162
98 $500 $160
99 $500 $158
100 $500 $156
101 $500 $154
102 $500 $152
103 $500 $151
104 $500 $149
105 $500 $147
106 $500 $145
107 $500 $144
108 $500 $142
109 $500 $140
110 $500 $139
111 $500 $137
112 $500 $136
113 $500 $134
114 $500 $133
115 $500 $131
116 $500 $129
117 $500 $128
118 $500 $127
119 $500 $125
120 $500 $124
years with annual 15% annual compound rate
Discount rate 5% 1.2272%

Choice PV 1 2 3 4 5 6 7
1 $1,000
2 $1,421 $2,000.00 2000
3 $2,149

if discount rate Option 2 is valuable choice

if discount rate Option 3 is valuable choice

30
$1,000.00 1638.6164403
1648.6648138 $1,000*(1+5%/365)^(10*365) = $1,649
8 9 10

$3,500.00
 0 1 2 3 4
Smash down Cash flow (Discounting) 620.9213 683.0135 751.3148 826.4463
45.45455 41.32231 37.56574 34.15067
0 1 2 3 4 5
513.1581182 564.4739 620.9213 683.0135 751.3148 826.4463

DCF 0 1 2 3 4 5
0 50 0 0 0
1210
0
0
0 11.316
60.5
0 50
1270.5

1000 5%
1 1050
2 1102.5
3 1157.625
4 1215.506
5 1276.282
6 1340.096
7 1407.1
8 1477.455
9 1551.328
10 1628.895
 5
909.0909 1000 50 PV = FV/(1+r)t
31.04607 10%
6 7
1000 1050
5%

PV Discounted Rate
1000 10%

23.55
36.9
Discount r 10% 20% 30%
Cashflow
Year 15220 -15220 -15220 -15220
1 5000 4545.455 4166.667 3846.154
2 6000 4958.678 4166.667 3550.296 2+0.352=2.352
3 7000 5259.204 4050.926 3186.163 5000/(1+8.38%)+6000/(1+8.38%)^2+7000/(1+8.38%)^3-
NPV -456.6642 -2835.741 -4637.387
NPV 0.969996 -0.813683 -0.69531
Cashflow 1 2 3
2000 1000 2000

Investment 15220 0 0
CashIn 5000 6000 7000
8%)^2+7000/(1+8.38%)^3-15220=0

ROI
5073.333 118%
6000
Internal Return Rate

Time Cashflow PV(Cashflow)

0 -1000 -1000
1 60 60.00
2 1060 1060.00

Disc.Rate 0%
NPV 120.00 =SUM(C5:C7)
IRR 6% =IRR(B4:B6)

-800 -800 -800 -800

200 150 100 75
Excel Modeling Template

Assumptions
Discount Rate 5%
Initial Investment -$1,050.00
Yearly Cash flows $40.00

Time 0 1 2
Cash Flows -$1,050.00 $40.00 $1,050.00
Present Value (CF) -1050 38.095238095 952.38095238

Net Present Value (NPV) -59.52

Net Present Value (Using Formula) -$59.52

IRR 2% =IRR(B9:H9)

Payback analysis
Cummulative cash flow -$1,050.00 -$1,011.90 -$59.52
 3 4
$0.00 $0.00
0 0

-$59.52
Simple example from lecture 3.8

Assuptions
Discount Rate 10%

Year 0 1 2 3
Revenue $ 500 $ 500 $ 500
Total Cost $ 300 $ 300 $ 300
Depreciation $ 100 $ 100 $ 100
EBIT $ 100 $ 100 $ 100
Taxes (30%) $ 30 $ 30 $ 30
NOPAT $ 70 $ 70 $ 70
Capital Saving $ 500 $ - $ - $ -
NET PP&E $ 500 $ 400 $ 300 $ 200
Cash from Operations $ - $ 170 $ 170 $ 170
Working Captical $ 150 $ 100 $ 50 $ -
Terminal (Assets Sale) $ - $ - $ - $ 200
Free Cash Flow $ (650.00) $ 220 $ 220 $ 420
NPV $ 47.37
NPV (Formula) $ 47.37
IRR 14%
Payback $ (650.00) $ (430.00) $ (210.00) $ 210.00
Assumptions
Discount Rate 14% 640000
224000
Year 0 1 2 3
Revenue $ 400,000 $ 400,000 $ 400,000
Total Cost $ 120,000 $ 120,000 $ 120,000
Depreciation $ 187,500 187500 187500.00
EBIT $ 92,500 $ 92,500 $ 92,500
Taxes (35%) $ 27,750 $ 27,750.00 $ 27,750.00
NOPAT $ 64,750 $ 64,750.00 $ 64,750.00
Captial Investment 750,000.00 $ - $ - $ -
Net PP&E $ 750,000 $ 562,500 375,000.00 187,500.00
Cash from Ops $ - $ - $ - $ -
Working Captical $ - $ - $ - $ -
Terminal Assets Sales $ - $ - $ - $ -
Free Cash Flow (750,000.00) $ 252,250 $ 252,250 $ 252,250
NPV $ (15,016.07)
NPV (Formula) ($15,016.07)
137500000 550
550000000 200 337.5 (NOPAT) + 50 (Dep) – 80 (NWC)
412500000 50 337.5
EBIT 450000000 50
Tax 112500000 387.5
NO PAT 337500000
 416000 882666.7
466666.666666667 163333.3
13333.3333333333 4666.667
4 471333.3
$ 400,000
$ 120,000 1250
187500 5000 3750
$ 92,500 800
$ 27,750 4000 3200
$ 64,750
$ - 700000
-
$ -
$ - 644000
$ - 1716000
$ 252,250

OPAT) + 50 (Dep) – 80 (NWC) -30 (CAPEX) = 277.5

 10%
0.5
7.5 0.727272727
3750
WACC 0.04873165

WACC = (E/V)(Re) + (D/V)(Rd) = (6/10)(12%) + (4/10)(6%) = 9.6%

800/(1+9.6%)^2

8%
556 1 year
Question 2 476 3 year
Company XYZ has a beta of 1.4. Assume the Treasury bond rate is 6%, and the risk premium is 8.5%. What is the expected retu
rf+Beta*Premium
17.9%
21.25%
A stock has an expected return of 15.3%, the risk-free rate is 5%, and the market risk premium is 8%. What must be the beta o
Beta = expected-rf/premium
1.2875
0.89
D/E = 40% = 40/100 => D = 40, E =100

E/(D+E) = 100/140 = 71.4%

33.3% Debt Ration
66.67% Equity Ration

WACC = (E/V)(Re) + (D/V)(Rd) = (6/10)(21.5%) + (4/10)(8%) = 16.1%

Re = 0.08 + (1.5)(0.9) = 21.5%

Company FIN has a WACC of 9.8%, a cost of equity of 13%, and a cost of debt of 6.5%. What is FIN’s debt-equity ratio?
9.8%=13%*E/V + 6.5%*(1-E/V) => E/V = 50.77% => D/E = 97%
 26.3%
73.7%
emium is 8.5%. What is the expected return on XYZ’s stock?

premium is 8%. What must be the beta of this stock?

Beta
1.4
0.14

. What is FIN’s debt-equity ratio?