1 Calculator NPV Steps CF CF0 negative number CF1 Cash Flow Year 1 enter F 1 enter Enter all year cash flows NPV I WACC given enter CPT enter NPV will be displayed IRR IRR will be displayed 2 Accept Reject Project Valuation based on NPV IRR NPV 0 Accept Project NPV 0 Reject Project NPV 0 Indifferent IRR Req Rate of Return Accept IRR Req Rate of Return Reject Project A Higher NPV Higher IRR accept project A Project A Higher NPV Project B Higher IRR use MIRR Crossover Rate CF1 A CF1 B CFcross1 CF2 A CF2 B CF cross2 do for all cash flows Input Crossover Cash Flows into calculator Compute IRR of Crossover Cashflows Payback Period Number of years with past cash flows Amount Needed Current Year Cash Flow Initial Investment Cash Flows Amount Needed Ex After two years a project has collected 1 200 yr 1 2 500 yr 2 3 700 total collected 2 years 4 800 Initial Investment 3 700 collected first 2 years 1 100 Needs to be collected Cash Flow Year 3 3 200 so 2 years 1 100 3 400 2 0 32 2 32 years Discounted Payback Payback Period does not account for TVM there is no risk adjustment an arbitrary cutoff point and is biased toward liquidity which is why we use discounted payback to better gauge payback CF2 CFn CF1 1 r 1 1 r 2 1 r n 2000 650 650 650 650 PV CF1 PV CF2 PV CF3 PVCF4 You must discount each cash flow to its present value using the equation above then perform same method as payback using the new cash flow amounts If 2 000 was owed payback would occur in 3 years 50 650 3 08 years 3 Companies Analysis EBIT EBITDA DEBT Min Int Pref Stock Cash EV EBIT EV EBITDA 764 878 Share Price 86 38 107 8 6 69 48 2768 259 74 49 251 4 53 99 Shares out 394 60 474 1 16 16 2740 20 130 1 138 9 17 average 17 14 14 16 14 15 KMB COL 2460 3789 3551 4210 16020 18858 686 P G CLX ChDw 503 3 859 580 4 13577 10349 70714 4249 10714 280 166 361 0 2 0 0 1234 0 0 EV based on EV EBIT EBIT Average EV EBIT 17 MV of Equity EV based on EV EBIT Debt Min Int Cash EV based on EV EBITDA EBITDA Average EV EBITDA 15 MV of Equity EV based on EV EBITDA Debt Min Int Cash Enterprise Value MV of Equity MV of Tot Liab debt MV of Preferred Stock MV of Minority Interest Cash Price per share EV Shares Out Cash Equivalents 4 Project Cash Flows Account Inventory Accounts Receivable Trade Accounts Payable Accrued Expenses NOWC NOWC First Year 1233 20 1988 40 1145 10 1426 80 Current Year 845 50 1319 90 864 40 1280 7 20 30 Second Year Third Year Fourth Year 1621 40 2430 60 1398 20 1622 10 1920 60 2780 10 1642 40 1784 30 2103 30 2962 40 1985 20 1901 20 649 70 629 40 first current 1031 70 382 00 2nd 1st 1274 00 242 30 3rd 2nd 1179 20 94 80 4th 3rd NOWC Cash Inv AR Accruals AP NOWC Funding Needs under Aggressive NOWC Management Under Conservative NOWC Management the firm will try to have financing for entire anticipated increase in NOWC 629 4 382 242 3 1 253 7 in current year Sales COGS Labor Utilities Lease Fixed Assets Depr Depr EBIT EBIT 1 T Inventory AR AP Accruals NOWC NOWC Conserv NOWC Salvage AT Salvage CF 30 000 100 000 0 30 000 19 500 95 000 214 500 1 200 000 840 000 130 000 6 000 30 000 33 33 000 161 000 104 600 60 000 30 000 25 000 20 000 45 000 45 000 137 650 1 200 000 840 000 130 000 6 000 30 000 45 45 000 149 000 96 850 90 000 50 000 25 000 20 000 90 000 50 000 141 850 1 200 000 840 000 130 000 6 000 30 000 15 15 000 179 000 116 350 90 000 50 000 25 000 20 000 95 000 131 350 FV1 FV2 FV3 FV4 FV5 TV MIRR TV CF0 1 n 1 MIRR 959 788 214 500 1 35 202 962 CF year1 1 WACC n 1 137 650 1 11 4 193 998 CF year 2 1 WACC n 1 141 850 1 11 4 161 836 142 691 252 300 959 788 1 200 000 840 000 130 000 6 000 30 000 7 7 000 187 000 121 500 90 000 50 000 25 000 20 000 95 000 1 200 000 840 000 130 000 6 000 0 224 000 146 600 90 000 50 000 25 000 20 000 95 000 95 000 95 000 18 000 11 700 252 300 EBIT Sales COGS Utilities Lease D A EBITDA EBIT Op Income Depreciation Project Cash Flow EBIT 1 T Depreciation Fixed Asset Expenditures Change in Fixed Assets Change in NOWC After tax Salvage FCF Free cash Flow EBIT 1 T D A Change in FA Change in Net Working Capital