Example Sensitivity Analysis

Sensitivity Analysis Impact of Sales Sales

Impact of COGS COGS

NPV $5,025,968 100,000 $5,025,968 70,000 ($2,423,131) 130,000 $12,475,067

Impact of Price Price 260 240 280

NPV $5,025,968 $5,025,968 $1,478,778 $8,573,158

0

1

110 120 100 Impact of NWC NWC

NPV 5,025,968 5,025,968 3,252,373 6,799,563

2100000 3000000 4000000

NPV 5,025,968 5,025,968 4,939,871 4,844,208

3

4

Analysis Year Incremental Earnings Forecast Sales Cost of Goods Sold Gross Profit Selling, General, and Admin. Research and Development Depreciation EBIT Income Tax Unlevered Net Income Free Cash Flow Plus: Depreciation Less: Capital Expenditures Less: Increase in NWC Free Cash Flow

2

$0 $23,500,000 $23,500,000 $23,500,000 $23,500,000 $0 $9,500,000 $9,500,000 $9,500,000 $9,500,000 $0 $14,000,000 $14,000,000 $14,000,000 $14,000,000 $0 $3,000,000 $3,000,000 $3,000,000 $3,000,000 $15,000,000 $0 $0 $0 $0 $0 $1,500,000 $1,500,000 $1,500,000 $1,500,000 ($15,000,000) $9,500,000 $9,500,000 $9,500,000 $9,500,000 ($6,000,000) $3,800,000 $3,800,000 $3,800,000 $3,800,000 ($9,000,000) $5,700,000 $5,700,000 $5,700,000 $5,700,000

$1,500,000 $0 ($2,100,000) ($16,500,000) $5,100,000

NPV

$0 ($7,500,000)

$1,500,000 $0 $0 $7,200,000

$1,500,000 $0 $0 $7,200,000

$1,500,000 $0 $0 $7,200,000

$5,025,968

Calculations Area Sales Sales of new router Canibalized Sales

$26,000,000 $26,000,000 $26,000,000 $26,000,000 $2,500,000 $2,500,000 $2,500,000 $2,500,000

Cost of Goods Sold COGS for New Router COGS for Canibilized Sales

$11,000,000 $11,000,000 $11,000,000 $11,000,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000

Net Working Capital Requirements Cash Requirements Inventory Receiveables

$0

$3,525,000

$3,525,000

$3,525,000

$3,525,000

Payables Net Working Capital PV of Free Cash Flow (Eq) PV of Free Cash Flow (Funct)

$0 $0

$1,425,000 $2,100,000

$1,425,000 $2,100,000

$1,425,000 $2,100,000

$1,425,000 $2,100,000

($16,500,000) ($16,500,000)

$4,553,571 $4,553,571

$5,739,796 $5,739,796

$5,124,818 $5,124,818

$4,575,730 $4,575,730

0

1

2

3

4

100,000 $260

100,000 $260

100,000 $260

100,000 $260

$110

$110

$110

$110

0.2 $2,800,000 0.4

0.2 $2,800,000 0.4

0.2 $2,800,000 0.4

0.2 $2,800,000 0.4

$200,000 0.25 $100 $60

$200,000 0.25 $100 $60

$200,000 0.25 $100 $60

$200,000 0.25 $100 $60

0.15 0.15

0.15 0.15

0.15 0.15

0.15 0.15

Data Year Direct Effects Unit Sales Wholesale Price Design Costs Production Cost Cost of Software Engineers Cost of Lab Equipment Depreciation % Cost of Marketing and Support Tax Rate

$5,000,000 $10,000,000 $7,500,000

0.4

Indirect Effects Lost Rental Canibalization: % of Units Canibalization: Sales Price Canibalization: Production Cost Working Capital Requirements Cash Requirements Inventory Receiveables (% of sales) Payables (% of sales) Cost of Capital

0.12

Impact of Canibalization Canibalization NPV 5,025,968 0.25 5,025,968 0.4 3,961,811 0.1 6,090,125 Impact of Cost of Capital COC NPV 5,025,968 0.12 5,025,968 0.15 3,572,134 0.1 6,090,428

5 $0 $0 $0 $0 $0 $1,500,000 ($1,500,000) ($600,000) ($900,000)

$1,500,000 $0 $2,100,000 $2,700,000

$0 $0

$0 $0

$0

$0 $0 $1,532,053 $1,532,053

5

0.2 0.4