**Calculate Expected Cash Flows, NPV, and Present Value for opening a UPS Store

ID: 2650571 • Letter: #

Question

**Calculate Expected Cash Flows, NPV, and Present Value for opening a UPS Store Franchise**

Specifically calculate the following:

1. Expected cash flows given forecasted profit

2. Present value and net present value

Discount rate is 15%

**Calculate Expected Cash Flows, NPV, and Present Value for opening a UPS Store Franchise**

Specifically calculate the following:

1. Expected cash flows given forecasted profit

2. Present value and net present value

Discount rate is 15%

Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Sales Units 10,000 12,000 14,400 17,280 20,736 Selling Price Per Unit 20 20 20 20 20 Sales A- 200,000 240,000 288,000 345,600 414,720 Less Variable Costs Direct Materials @ 4 per unit 40,000 48,000 57,600 69,120 82,944 Direct Labor @ 5 per unit 50,000 60,000 72,000 86,400 103,680 Variable overheads @3 30,000 36,000 43,200 51,840 62,208 Total Variable cost -B 120,000 144,000 172,800 207,360 248,832 Contribution -C = (A+B) 80,000 96,000 115,200 138,240 165,888 Less: Fixed Costs 100,000 100,000 100,000 100,000 100,000 Profit -20,000 -4,000 15,200 38,240 65,888 Assumptions: Sales in the first year is 10,000 units Selling price per unit is 20 Sales increase every year by 20% Direct material cost is 4 per unit Direct labor cost is 5 per unit Variable overhead rate per unit is 3 per unit Fixed costs are 100,000 remaining the same throughout the 5 year projection

Explanation / Answer

Particulars

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Sales Units

10,000

12,000

14,400

17,280

20,736

Selling Price Per Unit

$ 20.00

Sales A-

$ 200,000.00

$ 240,000.00

$ 288,000.00

$ 345,600.00

$ 414,720.00

Less Variable Costs

Direct Materials @ 4 per unit

$ 40,000.00

$ 48,000.00

$ 57,600.00

$ 69,120.00

$ 82,944.00

Direct Labor @ 5 per unit

$ 50,000.00

$ 60,000.00

$ 72,000.00

$ 86,400.00

$ 103,680.00

Variable overheads @3

$ 30,000.00

$ 36,000.00

$ 43,200.00

$ 51,840.00

$ 62,208.00

Total Variable cost -B

$ 120,000.00

$ 144,000.00

$ 172,800.00

$ 207,360.00

$ 248,832.00

Contribution -C = (A+B)

$ 80,000.00

$ 96,000.00

$ 115,200.00

$ 138,240.00

$ 165,888.00

Less: Fixed Costs

$ 100,000.00

Profit / Expected cash flows

$ (20,000.00)

$ (4,000.00)

$ 15,200.00

$ 38,240.00

$ 65,888.00

PVF (15%)

0.86957

0.75614

0.65752

0.57175

0.49718

1/(1+0.15)^1

1/(1+0.15)^2

1/(1+0.15)^3

1/(1+0.15)^4

1/(1+0.15)^5

Present value = Cash Flow * PVF

$ (17,391.30)

$ (3,024.57)

$ 9,994.25

$ 21,863.84

$ 32,757.98

Net Present value (Sum of PV)

$ 44,200.19