Please solve it

Cost of project -30000

Life of the project 5year

Anual sale @ 30 each

Variable cost p/u 20

Fixed cost 3000

Deprication-2000

It is estimated the following variable


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Replies (4)
Quick Summary
This discussion delves into project financial modelling, highlighting the importance of using WDV depreciation for tax savings as SLM is not always permitted by tax acts. It also explains sensitivity analysis as a method to determine how changes in variables like sales volume, selling price, or variable costs impact the Net Present Value (NPV), ultimately identifying break-even points.

               
               

Hi, I realised there is a small error in the above model, use Wdv depreciation for tax savings as SLM method is not allowed. 

The Indian companies act allows SLM depreciation but not the Tax act. Since, there is no depreciation rate mentioned here, you can follow SLM method with full tax paid without arrears. This question is not so well structured. Coming to the sensitivity analysis, You have to find out what amount of changes in the variables like no. of units, selling price or Variable costs will make NPV=0 (Break even). This is the best method of simulation in financial modelling. Other wise, there are formulas to find out what independent variable should increase or decrease to make NPV=0, but I am unaware of the logical formulas for your question requirements. The sensitivity analysis has drawbacks like changes to amounts required are individual i.e., you have change every single variable to check at what amount will NPV=0.  Time consuming!

 

Year Equipment Income Tax allowable depreciation Running costs Net CF DF @ 10% PV of CF
0 -30000   1000   -29000 1 -29000
1   54000 1000 10200 44800 0.91 40768
2   54000 1000 10200 44800 0.83 37184
3   54000 1000 10200 44800 0.75 33600
4   54000 1000 10200 44800 0.68 30464
5   54000 1000 10200 44800 0.62 27776
            NPV 140792
  Depreciation RB Tax Saved        
0 2000 28000 1000        
1 2000 26000 1000        
2 2000 24000 1000        
3 2000 22000 1000        
4 2000 20000 1000        
               
  Units sold Sold @ 30 Variable costs Fixed costs Running costs    
Pessimistic 800 24000 12000 3000 15000    
Optimistic 1800 54000 7200 3000 10200    

 

Year Equipment Income Tax allowable depreciation Running costs Net CF DF @ 10% PV of CF
0 -30000   1000   -29000 1 -29000
1   24000 1000 15000 10000 0.91 9100
2   24000 1000 15000 10000 0.83 8300
3   24000 1000 15000 10000 0.75 7500
4   24000 1000 15000 10000 0.68 6800
5   24000 1000 15000 10000 0.62 6200
            NPV 8900
  Depreciation RB Tax Saved        
0 2000 28000 1000        
1 2000 26000 1000        
2 2000 24000 1000        
3 2000 22000 1000        
4 2000 20000 1000        
5 2000 18000 1000        
  Units sold Sold @ 30 Variable costs Fixed costs Running costs    
Pessimistic 800 24000 12000 3000 15000    
Optimistic 1800 54000 7200 3000 10200    

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