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Salida Salt Company State Rock Salt Contract Analysis Input Variables Basic Value Distribution

The document analyzes the cash flows of a proposed rock salt contract for Salida Salt Company over 5 years. It details input variables like the amount of salt produced annually and costs of equipment, operations, and taxes. The annual cash flows show revenues of $5 million per year from salt sales but costs of $3.76 million for variables and $500,000 for fixed costs. After taxes, the annual after-tax cash flow is $642,000 each year, resulting in a positive net present value and internal rate of return for the 5-year project.

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Akriti Shah
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Download as XLSX, PDF, TXT or read online on Scribd
382 views

Salida Salt Company State Rock Salt Contract Analysis Input Variables Basic Value Distribution

The document analyzes the cash flows of a proposed rock salt contract for Salida Salt Company over 5 years. It details input variables like the amount of salt produced annually and costs of equipment, operations, and taxes. The annual cash flows show revenues of $5 million per year from salt sales but costs of $3.76 million for variables and $500,000 for fixed costs. After taxes, the annual after-tax cash flow is $642,000 each year, resulting in a positive net present value and internal rate of return for the 5-year project.

Uploaded by

Akriti Shah
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Salida Salt Company

State Rock Salt Contract Analysis


Input Variables Basic Value Distribution
Amount of Rock Salt per Year 40,000 Tons Triangular
Revenue per Ton $ 125 No Change
Cost of Equipment $ 2,300,000 No Change
Life 5 No Change
Depreciation Method (SLM) 5 No Change
Fixed Cost $ 500,000 No Change
Var Cost/Ton $ 94 Normal
Total Var Cost $ 3,760,000 No Change
Actual Salvage $ 150,000 Uniform
Change in NWC $ 115,000 No Change
Required Return 12% No Change
Tax Rate 35% No Change

Annual Cash Flows for Salida Salt Project


Year 0 Year 1 Year 2 Year 3
Initial Outlay $ 2,415,000
Unit Sales 40,000 Tons 40,000 Tons 40,000 Tons
Sales 5,000,000 5,000,000 5,000,000
Variable Costs 3,760,000 3,760,000 3,760,000
Fixed Costs 500,000 500,000 500,000
Depreciation 460,000 460,000 460,000
Taxable Cash Flows 280,000 280,000 280,000
Taxes 98000 98000 98000
Add: Depreciation 460,000 460,000 460,000
Annual After-Tax Cash Flow 642,000 642,000 642,000
Terminal Cash Flow
Total Annual Cash Flows (2,415,000) 642,000 642,000 642,000

Net Present Value


Payback Period
IRR
MIRR
ct
Year 4 Year 5

40,000 Tons 40,000 Tons


5,000,000 5,000,000
3,760,000 3,760,000
500,000 500,000
Don't make changes in this
460,000 460,000 portion
280,000 280,000
98000 98000
460,000 460,000
642,000 642,000
-
642,000 642,000

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