Exercise / Step 4.1 : Capacity base case
Calculate a capacity base case
From a spreadsheet which you will use as a framework, you will evaluate the profitability of a capacity investment: the company buys a machine to manufacture and sell products during a given period.
You got the following information:
- Investment lifetime 8 years
- Number of products sold 15,000 units per year
- Unit selling price $100
- Variable cost $40 per unit (only cash items)
- Fixed costs $400,000
- Machine purchasing price $1,200,000
- Corporate tax rate 35%
- WACC 7%
The machine is evenly depreciated over its expected lifetime.
The attached file discounts the cash-flows and accumulates them. Your task consists, then, to complete the cells in blue:
I suggest you use $k (‘000) for all calculations.
