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Calculation for NPV / VAN

NPV

Hello,

could someone tell me, how they come up with the NPV/ VAN calculation here and there required price?

http://www.archeryconsulting.fr/files/etude-cas-archery_FR.pdF

thanks.

Hello,

could someone tell me, how they come up with the NPV/ VAN calculation here and there required price?

http://www.archeryconsulting.fr/files/etude-cas-archery_FR.pdF

thanks.

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Hi Anonymous,

the link you posted seems not working, could you please post the full question? We can then provide an answer to it.

Best,

Francesco

---

EDIT

The new link works, thanks.

The solution is quite bad explained indeed.

For the NPV in the first case, you get -50M as follows:

Data:

  • Investment: 300M
  • Quantity: 500k
  • Price: 1850
  • Cost: 1800
  • Discount rate: 10%

Thus profit margin is 50. Multiplied times 500k you get 25M. Using the perpetuity formula with 10% discount rate, you get 250M in the lifetime of operations (25M/10%).

Thus the net result is -300M+250M = -50M

For the minimum price, you get 2025 as follows.

Data:

  • Investment: 300M
  • Old quantity: 300k
  • Old price: 2300
  • Old cost: 2000
  • New quantity: 500k
  • New price: x
  • New cost: 1800
  • Discount rate: 10%

For some reasons not clearly explained, the case assumes that you will produce the 300k at the old cost, plus the additional 500k at the new cost. Thus:

New profits – Investment = Old profits

((x-2000)*300k)/10% +((x-1800)*500k)/10%-300M=((2300-2000)*300k)/10%

Where x is the minimum price. Solving the equation you get

x*3M-6B+x*5M-9B-300M=900M

x=16.2B/8M=2025

Hope this helps,
Francesco

Hi Anonymous,

the link you posted seems not working, could you please post the full question? We can then provide an answer to it.

Best,

Francesco

---

EDIT

The new link works, thanks.

The solution is quite bad explained indeed.

For the NPV in the first case, you get -50M as follows:

Data:

  • Investment: 300M
  • Quantity: 500k
  • Price: 1850
  • Cost: 1800
  • Discount rate: 10%

Thus profit margin is 50. Multiplied times 500k you get 25M. Using the perpetuity formula with 10% discount rate, you get 250M in the lifetime of operations (25M/10%).

Thus the net result is -300M+250M = -50M

For the minimum price, you get 2025 as follows.

Data:

  • Investment: 300M
  • Old quantity: 300k
  • Old price: 2300
  • Old cost: 2000
  • New quantity: 500k
  • New price: x
  • New cost: 1800
  • Discount rate: 10%

For some reasons not clearly explained, the case assumes that you will produce the 300k at the old cost, plus the additional 500k at the new cost. Thus:

New profits – Investment = Old profits

((x-2000)*300k)/10% +((x-1800)*500k)/10%-300M=((2300-2000)*300k)/10%

Where x is the minimum price. Solving the equation you get

x*3M-6B+x*5M-9B-300M=900M

x=16.2B/8M=2025

Hope this helps,
Francesco

(edited)

It should actually work, this is the case example on archery http://www.archeryconsulting.fr/files/etude-cas-archery_FR.pdf Thanks! — Anonymous on Aug 22, 2019 (edited)

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