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    Peseta: Peseta Cash Flow Discounted by Peseta Discount Rate

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    Ryan Putera Pratama Manafe
    This document presents financial information for evaluating a potential capital investment project by Merck in Spain. It includes cash flow projections in pesetas and their discounted values using Merck's hurdle rates. Two alternative scenarios are considered: if the annual inflation rate in Spain was 4% instead of 8%, and if there was parity violation between the peseta and dollar in years 1 and 2. The NPV of the project is positive under the base assumptions but becomes more positive if Spanish inflation is lower, and turns negative if there is parity violation in early years.

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    Download as XLS, PDF, TXT or read online from Scribd

    Peseta: Peseta Cash Flow Discounted by Peseta Discount Rate

    Uploaded by

    Ryan Putera Pratama Manafe
    65 views8 pages
    This document presents financial information for evaluating a potential capital investment project by Merck in Spain. It includes cash flow projections in pesetas and their discounted values using Merck's hurdle rates. Two alternative scenarios are considered: if the annual inflation rate in Spain was 4% instead of 8%, and if there was parity violation between the peseta and dollar in years 1 and 2. The NPV of the project is positive under the base assumptions but becomes more positive if Spanish inflation is lower, and turns negative if there is parity violation in early years.

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    This document presents financial information for evaluating a potential capital investment project by Merck in Spain. It includes cash flow projections in pesetas and their discounted values using Merck's hurdle rates. Two alternative scenarios are considered: if the annual inflation rate in Spain was 4% instead of 8%, and if there was parity violation between the peseta and dollar in years 1 and 2. The NPV of the project is positive under the base assumptions but becomes more positive if Spanish inflation is lower, and turns negative if there is parity violation in early years.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    65 views8 pages

    Peseta: Peseta Cash Flow Discounted by Peseta Discount Rate

    Uploaded by

    Ryan Putera Pratama Manafe
    This document presents financial information for evaluating a potential capital investment project by Merck in Spain. It includes cash flow projections in pesetas and their discounted values using Merck's hurdle rates. Two alternative scenarios are considered: if the annual inflation rate in Spain was 4% instead of 8%, and if there was parity violation between the peseta and dollar in years 1 and 2. The NPV of the project is positive under the base assumptions but becomes more positive if Spanish inflation is lower, and turns negative if there is parity violation in early years.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
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    peseta

    Peseta Cash Flow discounted by Peseta Discount Rate


    Assumption

    tax rate

    35.00%

    Relevant Cash flows :


    Investment outlay
    after tax salvage value (old eq.)
    after tax cost savings
    Old eq depreciation's tax shields
    New eq. depreciation's tax shields.
    Incremental after tax cash flows

    0
    -61,525.00
    1,179.25

    -60,345.75

    12,233.00
    -187.25
    2,153.38
    14,199.13

    Merck's dollar hurdle rate for a project of this type :


    Annual inflation in Spain
    Annual inflation in US
    Merck's peseta hurdle rate :

    13.00%
    8.00%
    3.00%
    18.49%

    12,255.10
    -187.25
    2,153.38
    14,221.23

    12,949.95
    -187.25
    2,153.38
    14,916.08

    13,495.30
    2,153.38
    15,648.68

    10,129.94

    8,967.26

    7,939.95

    Discount rate

    Valuation in Peseta and Dollar


    PV of total cash flows (peseta)
    NPV project (peseta)
    NPV project (dollar)

    -60,345.75
    9,059.81
    71.34

    11,983.86

    Page 1

    peseta

    10

    13,973.05

    14,495.65

    15,080.00

    15,724.80

    16,450.20

    17,260.10

    2,153.38
    16,126.43

    2,153.38
    16,649.03

    2,153.38
    17,233.38

    2,153.38
    17,878.18

    2,153.38
    18,603.58

    2,153.38
    19,413.48

    6,905.79

    6,017.26

    5,256.73

    4,602.60

    4,042.14

    3,560.03

    Page 2

    dollar
    Dollar cash flow discounted by dollar discount rate
    Assumption : tax rate

    35.00%

    Relevant Cash flows :


    0
    incremental after tax cash flows-60,345.75

    1
    14,199.13

    2
    14,221.23

    3
    14,916.08

    4
    15,648.68

    139.63
    101.85
    79.76

    146.41
    101.88
    70.61

    153.51
    101.94
    62.52

    Discount rate
    Merck's dollar hurdle rate for a project of this type13.00%
    :
    Annual inflation in Spain
    8.00%
    Annual inflation in US
    3.00%
    Merck's peseta hurdle rate :
    18.49%

    Valuation in Dollar
    Projected exch. rate
    Total cash flows (dollar)
    PV cash flows (dollar)
    NPV project (dollar)

    127.00
    -475.16
    -475.16
    71.34

    133.17
    106.63
    94.36

    Page 3

    dollar

    5
    16,126.43

    6
    16,649.03

    7
    17,233.38

    8
    17,878.18

    9
    18,603.58

    10
    19,413.48

    160.97
    100.18
    54.38

    168.78
    98.64
    47.38

    176.97
    97.38
    41.39

    185.56
    96.34
    36.24

    194.57
    95.61
    31.83

    204.02
    95.16
    28.03

    Page 4

    if 1
    if the spain inflation is 4% rather than 8%
    Year
    Cost of old equipment (8% inflation)
    cost of old equpment (4% inflation)
    cost of new equipment (8% inflation)
    cost of new equipment (4% inflation)
    cost savings
    after tax cost savings

    Assumption

    tax rate

    1
    88,496.00
    85,218.37
    69,676.00
    67,095.41
    18,122.96
    11,779.93

    2
    88,662.00
    82,216.07
    69,808.00
    64,732.80
    17,483.27
    11,364.13

    3
    93,686.00
    83,657.22
    73,763.00
    65,866.92
    17,790.31
    11,563.70

    4
    97,634.00
    83,953.62
    76,872.00
    66,100.77
    17,852.85
    11,604.35

    35.00%

    Relevant Cash flows :


    Investment outlay
    after tax salvage value (old eq.)
    after tax cost savings
    Old eq depreciation's tax shields
    New eq. depreciation's tax shields.
    Total Cash Flows

    0
    -61,525.00
    1,179.25

    -60,345.75

    11,779.93
    -187.25
    2,153.38
    13,746.05

    Merck's dollar hurdle rate for a project of this type :


    Annual inflation in Spain
    Annual inflation in US
    Merck's peseta hurdle rate :

    13.00%
    4.00%
    4.00%
    13.00%

    11,364.13
    -187.25
    2,153.38
    13,330.25

    11,563.70
    -187.25
    2,153.38
    13,529.83

    11,604.35
    2,153.38
    13,757.73

    10,439.54

    9,376.85

    8,437.87

    Discount rate

    Valuation in Peseta and Dollar


    PV of total cash flows (peseta)
    NPV project (peseta)
    NPV project (dollar)

    -60,345.75
    13,864.74
    109.171199

    12,164.65

    Page 5

    if 1

    5
    101,091.00
    83,706.74
    79,594.00
    65,906.50
    17,800.24
    11,570.15

    6
    104,872.00
    83,621.33
    82,571.00
    65,839.28
    17,782.05
    11,558.33

    7
    109,101.00
    83,771.41
    85,901.00
    65,957.67
    17,813.74
    11,578.93

    8
    113,765.00
    84,117.30
    89,573.00
    66,229.85
    17,887.45
    11,626.84

    9
    119,012.00
    84,737.77
    93,704.00
    66,718.21
    18,019.56
    11,712.71

    10
    124,872.00
    85,617.18
    98,318.00
    67,410.71
    18,206.47
    11,834.21

    10

    11,570.15

    11,558.33

    11,578.93

    11,626.84

    11,712.71

    11,834.21

    2,153.38
    13,723.53

    2,153.38
    13,711.71

    2,153.38
    13,732.30

    2,153.38
    13,780.22

    2,153.38
    13,866.09

    2,153.38
    13,987.58

    7,448.58

    6,585.99

    5,837.06

    5,183.56

    4,615.81

    4,120.58

    Page 6

    if 2
    there would be parity violation in year 1 and 2

    Total cash flows (peseta)


    PV of total cash flows (ps)
    NPV project (ps)
    NPV project ($)

    0
    -60,346
    -60,346
    9,060
    71

    1
    14,199
    11,984

    2
    14,221
    10,130

    3
    14,916
    8,967

    4
    15,649
    7,940

    185.00
    76.87
    60.20

    193.98
    76.89
    53.29

    203.40
    76.94
    47.19

    Discount rate
    Merck's dollar hurdle rate for a project of this type13.00%
    :
    Annual inflation in Spain
    8.00%
    Annual inflation in US
    3.00%
    Merck's peseta hurdle rate :
    18.49%

    Valuation in Dollar
    Projected exch. rate
    Total cash flows (dollar)
    PV cash flows (dollar)
    NPV project (dollar)

    127.00
    -475.16
    -475.16
    -50.14

    150.00
    94.66
    83.77

    Page 7

    if 2

    5
    16,126
    6,906

    6
    16,649
    6,017

    7
    17,233
    5,257

    8
    17,878
    4,603

    9
    18,604
    4,042

    10
    19,413
    3,560

    213.27
    75.61
    41.04

    223.62
    74.45
    35.76

    234.48
    73.50
    31.24

    245.86
    72.72
    27.35

    257.80
    72.16
    24.02

    270.31
    71.82
    21.16

    Page 8

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