Analysis of Cash Flow - Planet Karaoke Pub

figures in baht

Yr. 0 Yr. 1 Yr. 2

Rental income 2,040,000 2,040,000

less Depreciation -192,500 -192500

less Increase in repair and maintenance expenses -10,000 -10,000
less Decrease in net room revenue -1,650,000 -1,683,000

Additional Operating Income 187,500 154,500

less Taxes -56,250 -46,350

NOPAT 131,250 108,150

add Depreciation 192,500 192,500

less Capital Expenditure -770,000

Operating Cash Flow -770,000 323,750 300,650

Discounted Operating Cash Flow @ 10.75% -770,000 292,325 245,117

Payback Period 2.46 yrs

Discounted Payback Period 3.01 yrs
Average Return on Investment 39%
NPV 165,017 baht
PI 1.21
IRR 21%
Equivalent Annuity 52,906 baht

Working Notes

1. Rental income = baht 170,000*12 for the years 1 and 2 and increase by 5% in the years 3 and 4
2. Straight line depreciation
3. Patronage factor taken as 0.5 i.e. 12.5% reduction in net room revenue
4. Taxes at 30%
5. Base capital cost = baht 770,000
6. WACC = 10.75%
Yr. 3 Yr. 4

2,142,000 2,142,000

-192500 -192500
-10,000 -10,000
-1,767,125 -1,855,500

172,375 84,000

-51,713 -25,200

120,662 58,800

192,500 192,500

313,162 251,300

230,536 167,039
 Analysis of Cash Flow - Beach Karaoke Pub

figures in baht

Yr. 0 Yr. 1 Yr. 2

Sales 4,672,000 4,905,600

less Food and Beverage Cost -1,168,000 -1,226,400

less Other Operating Expenses -1,027,840 -1,079,232
less Depreciation -283,333 -283,333
less Increase in repair and maintenance expenses -10,000 -10,000
less Decrease in net room revenue -1,650,000 -1,683,000

Additional Operating Income 532,827 623,635

less Taxes -159,848 -187,090

NOPAT 372,979 436,544

add Depreciation 283,333 283,333

less Capital Expenditure -1,700,000 -283,333 -283,333

Operating Cash Flow -1,700,000 372,979 436,544

Discounted Operating Cash Flow @ 10.75% -1,700,000 336,775 355,911

Payback Period 3.84 yrs

Discounted Payback Period 4.95 yrs
Average Return on Investment 30%
NPV 373,043 baht
PI 1.22
IRR 17%
Equivalent Annuity 87,545 baht

Working Notes

1. Growth rate in sales = 5%

2. Food and beverage cost at 25% of sales
3. Other operating expenses at 22% of sales
4. Salaries not considered as sunk cost
5. Straight line depreciation
6. Patronage factor taken as 0.5 i.e. 12.5% reduction in net room revenue
7. Taxes at 30%
8. Base capital cost = baht 1,700,000
9. WACC = 10.75%
Yr. 3 Yr. 4 Yr. 5 Yr. 6

5,150,880 5,408,424 5,678,845 5,962,787

-1,287,720 -1,352,106 -1,419,711 -1,490,697

-1,133,194 -1,189,853 -1,249,346 -1,311,813
-283,333 -283,333 -283,333 -283,333
-10,000 -10,000 -10,000 -10,000
-1,767,125 -1,855,500 -1,892,500 -1,930,375

669,508 717,631 823,955 936,569

-200,852 -215,289 -247,186 -280,971

468,656 502,342 576,768 655,598

283,333 283,333 283,333 283,333

-283,333 -283,333 -283,333 -283,333

468,656 502,342 576,768 655,598

345,003 333,906 346,165 355,284

 Weighted Average Cost of Capital (WACC)

WACC = We*Ke + Wd*Kd*(1-t)

We = proportion of debt in total financing = 25%

Wd = proportion of equity in total financing = 75%
Ke = cost of equity = 12%
Kd = cost of debt = 10%
t = tax rate = 30%

WACC = 0.75*0.12 + 0.25*0.10*(1-0.30) = 10.75%

 Sensitivity Analysis - One Factor

Equivalent Annuity (EA) in baht

Sensitivity Analysis: Patronage Factor

Patronage Factor Lease option -EA Build option - EA Decision

0 1,263,950 1,332,436 Build
0.25 658,428 709,990 Build
0.5 52,906 87,545 Build
0.75 -552,616 -534,901 Reject both
1 -1,158,138 -1,157,347 Reject both

Sensitivity Analysis: Upfront Investment

% Increase in Lease option -EA Build option - EA Decision

Upfront Investment
0% 52,906 87,545 Build
5% 43,450 57,680 Build
10% 33,994 27,816 Lease
20% 15,082 -31,912 Lease
30% -3,830 -91,641 Reject both

Sensitivity Analysis: Cost of Capital

Cost of Capital Lease option -EA Build option - EA Decision

8% 66,676 122,557 Build
10.75% 52,906 87,545 Build
12% 46,536 71,332 Build
14% 36,207 45,022 Build
16% 25,712 18,274 Lease
18% 15,057 -8,889 Lease
20% 4,247 -36,449 Lease
22% -6,712 -64,385 Reject both
 Sensitivity Analysis - Two Factors
Factors: Cost of Capital and Patronage Factor

Equivalent Annuity (EA) in baht

The Build Option

Patronage Cost of Capital

Factor 8% 10.75% 12% 14% 16% 18%
0 1,370,536 1,332,436 1,314,853 1,286,391 1,257,545 1,228,335
0.25 746,546 709,990 693,092 663,706 637,910 609,723
0.5 122,557 87,545 71,332 45,022 18,274 -8,889
0.75 -501,433 -534,901 -550,428 -575,663 -601,361 -627,501
1 -1,125,422 -1,157,347 -1,172,189 -1,196,348 -1,220,996 -1,246,114

The Lease Option

Patronage Cost of Capital

Factor 8% 10.75% 12% 14% 16% 18%
0 1,279,229 1,263,950 1,256,911 1,245,531 1,234,011 1,222,356
0.25 672,952 658,428 651,724 640,869 629,862 618,706
0.5 66,676 52,906 46,536 36,207 25,712 15,057
0.75 -539,601 -552,616 -558,651 -568,455 -578,437 -588,592
1 -1,145,877 -1,158,138 -1,163,838 -1,173,117 -1,182,587 -1,192,241

Difference in EA (Build - Lease)

Patronage Cost of Capital

Factor 8% 10.75% 12% 14% 16% 18%
0 91,307 64,486 57,942 40,860 23,534 5,979
0.25 73,594 51,562 41,368 24,837 8,048 -8,983
0.5 55,881 34,639 24,796 8,815 -7,438 -23,946
0.75 38,168 17,715 8,223 -7,208 -22,924 -38,909
1 20,455 791 -8,351 -23,231 -38,409 -53,873

Decision

Patronage Cost of Capital

Factor 8% 10.75% 12% 14% 16% 18%
0 Build Build Build Build Build Build
0.25 Build Build Build Build Build Lease
0.5 Build Build Build Build Lease Lease
0.75 Rej. Both Rej. Both Rej. Both Rej. Both Rej. Both Rej. Both
1 Rej. both Rej. Both Rej. Both Rej. Both Rej. Both Rej. both