Draper Corporation

Year
1998 1999 2000 2001 2002
Units 1,000 1,000 1,000 1,000 1,000
Unit price $20.00 $20.60 $21.00 $21.15 $21.25

1998 1999 2000 2001 2002

Capex $400.00 $400.00 $400.00 $400.00 $300.00
Depreciation $1,057.00 $1,124.00 $1,204.00 $1,304.00 $1,404.00

1998 1999 2000 2001 2002

Working Capital $3,700.00 $3,811.00 $3,890.00 $3,930.00 $3,963.00
(Investment in) Recovery of w ($108.00) ($111.00) ($79.00) ($40.00) ($33.00)

1998 1999 2000 2001 2002

Sales $20,000,000 $20,600,000 $21,000,000 $21,150,000 $21,250,000
Cash Cost of Goods 10,000,000 10,300,000 10,609,000 10,927,270 11,255,088
Depreciation 1,057,000 1,124,000 1,204,000 1,304,000 1,404,000
Gross profit 8,943,000 $9,176,000 $9,187,000 $8,918,730 $8,590,912
Sell, General and Admin. 7,000,000 7,210,000 7,426,300 7,649,089 7,878,562
EBIT 1,943,000 $1,966,000 $1,760,700 $1,269,641 $712,350
Tax @ 40% 777,000 $786,400 $704,280 $507,856 $284,940
EBIAT $1,166,000 $1,179,600 $1,056,420 $761,785 $427,410

Free Cash Flows are

1998 1999 2000 2001 2002
NOPAT $1,166,000 $1,179,600 $1,056,420 $761,785 $427,410
Add: Depreciation 1,057,000 1,124,000 1,204,000 1,304,000 1,404,000
Less Capex (400,000) (400,000) (400,000) (400,000) (300,000)
Less change in working capita ($108,000) ($111,000) ($79,000) ($40,000) ($33,000)
Free Cash Flows $1,715,000 $1,792,600 $1,781,420 $1,625,785 $1,498,410
PV of free cash flow $8,846,413

If we discontinue now
Sale of fixed assets 3,000,000
Tax benefit on loss 1,600,000
Recovery of working capital 3,592,000
Net cash flow 8,192,000
It is better to continue as the PV of cash flows is higher as compared to discontinuing the product now

I would recommend that the Synectics product line is continued as it would result
in a postive NPV
 2003 2004 2005
1,000 1,000 0
$21.25 $21.00 $19.00

2003 2004 2005

$200.00 $0.00
$1,504.00 $1,504.00

2003 2004 2005

$3,980.00 $3,957.00 $0.00
($17.00) $23.00 $3,957.00

2003 2004 2005

$21,250,000 $21,000,000
11,592,741 11,940,523
1,504,000 1,504,000
$8,153,259 $7,555,477
8,114,919 8,358,366
$38,341 ($802,889)
$15,336 ($321,156)
$23,004 ($481,733)

2003 2004 2005

$23,004 ($481,733) $0
1,504,000 1,504,000
(200,000) -
($17,000) $23,000 $3,957,000
$1,310,004 $1,045,267 $3,957,000