CTC 475 Review

1
CTC 475 Review

• Taxes
• Types of taxes
• Income tax is graduated
• ATCF
• Calculate Depreciation
• BTCF-DepreciationTI
• TaxTItax rate
• ATCFBTCF-Tax

2
CTC 475

• Methods for Evaluating Uncertainty

3
Objective

• Know various methods for evaluating uncertainty
• Breakeven
• Sensitivity
• OMP
• Probabilistic (Monte-Carlo)

4
Breakeven

• Determine quantity needed to break-even

5
Example Problem-Breakeven

• Sales Price 12.50 per unit
• Revenues 12.5X
• Equipment cost 200,000
• Overhead cost 50,000 per year
• OM 25 per operating hour
• Production time per 1000 units100 hours (0.1 hr
  per unit)
• Annual OM cost0.125X2.5X
• Planning horizon 5 years
• MARR 15

6
AW

• AW-200K(A/P15,5)-50K-2.5X12.5X
• AW-109,660-2.5X12.5X
• AW-109,66010X
• If set AW0
• Then X10,966 (Breakeven Value)

7
Sensitivity Analysis

• Used to analyze effects of varying estimated
  parameters
• Non-probabilistic technique

8
Sensitivity Example

• Initial Investment 10K
• Annual Receipts 3K
• Project Duration 5 years
• MARR 12
• AW-10K(A/P12,5)3K 226
• Varying one parameter at a time /-40, determine
  AW

9
Vary Annual ReceiptsAW(12)-10K(A/P12,5)3K
(1X)
X Annual Receipts AW
-40 1,800 -974
-30 2,100 -674
-20 2,400 -374
-10 2,700 -74
0 3,000 226
10 3,300 526
20 3,600 826
30 3,900 1,126
40 4,200 1,426
10
Vary Initial InvestmentAW(12)-10K(1X)(A/P12,5
)3K
X Initial Investment AW
-40 6,000 1,646
-30 7,000 1,079
-20 8,000 805
-10 9,000 530
0 10,000 226
10 11,000 -18
20 12,000 -293
30 13,000 -567
40 14,000 -842
11
Vary MARRAW(12)-10K (A/P12(1X),5)3K
X MARR AW
-40 7.2 1,646
-30 8.4 1,079
-20 9.6 805
-10 10.8 530
0 12 226
10 13.2 -18
20 14.4 -293
30 15.6 -567
40 16.8 -842
12
Vary Project DurationAW(12)-10K (A/P12,5(1X)
)3K
X Duration AW
-40 3 -1,163
-30
-20 4 -292
-10
0 5 226
10
20 6 568
30
40 7 809
13
(No Transcript)
14
Sensitivity

• Less sensitive to MARR
• More sensitive to the other 3 parameters
• Can do same type of analysis using PW/IRR, etc.

15
Varying more than one parameter

• Varying 2 parameters at a time results in a 3D
  graph
• See project 8

16
OMP Analysis

• Optimistic
• Cash flows occur as well as can be reasonably
  expected
• Most Likely
• Pessimistic
• Cash flows occur as detrimentally as can be
  reasonably expected

17
OMP Example
O M P
Investment -150K -150K -150K
Life 18 10 8
Market Value 0 0 0
Annual Revenues 110K 70K 50K
Annual Expenses -20K -43K -57K

AW 74,000 4,650 -33,100
18
OMP Analysis
Annual Expenses Annual Expenses Annual Expenses Annual Expenses Annual Expenses Annual Expenses Annual Expenses Annual Expenses Annual Expenses
O O O M M M P P P
Life Life Life Life Life Life Life Life Life
O M P O M P O M P
O 74K 68K 64K 51K 45K 41K 37K 31K 27K
M 34K 28K 24K 11K 5K 9K 3K 9K 13K
P 14K 8K 4K 9K 15K 19K 23K 29K 33K
19
Probabilistic Analysis (Monte Carlo)

• Use of probability for analysis of anything which
  involves risk and uncertainty
• Must develop/assume probability distributions
• Use random s to determine values based on
  probabilities
• Make multiple runs (100x or 1000x)
• Summarize probabilities

20
Example using Probabilities
Useful Life Probability Random
3 20 00-19
5 40 20-59
7 25 60-84
10 15 85-99
21
Next lecture