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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Calculation for NPV / VAN
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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
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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)
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It should actually work, this is the case example on archery http://www.archeryconsulting.fr/files/etude-cas-archery_FR.pdf Thanks!
(edited)