Stryker Corporation: in-Sourcing Pcb's

COMPUTING NPV and IRR PCP Pj vs STATUS QUO STRYKER Case decrease in purchases from contract manufacturers less incremental Stryker manufacturing costs Operating income from project less architect and engineering fees pre-tax income less taxes at 36% After-tax income add back Building depreciation add back Equipment depreciation add back It & other equipment depreciation Subtotal plus NCW Savings Subtotal Cash Flow Terminal Value, at book value Hurdle rate Discount factor at 15% PV of Cash Flows Sum, PV of Cash Flows & Terminal Value (BV Less 3 Initial Investments: 1. Building 2. Capital equipment 3. IT & Other equipment NPV (=7,199-3,030-2,643-336) IRR Calculation Cash Flows (note: 6.187 = investments plus eng fees) (where the NPV = zero) > IRR PAY BACK PERIOD CALCULATION (non-disc)
Cash Flows Accumulated Cash Flow PBP = 4 years + 2.045/3.586 = 4.6 years Pay Back Period Period (Discounted ) Cash Flows Accumulated cash flows

year0 2003 0 0 0 -278 -278 -100 -178 0 0 0 -178 0 -178 15% 1,0000 -178 7.199 3.030 2.643 336 1.190

year1 2004 0 1.712 -1.712 0 -1.712 -616 -1.096 101 189 56 -750 0 -750

year2 2005 6.438 7.847 -1.409 0 -1.409 -507 -902 101 377 112 -312 10 -302

year3 2006 11.773 9.553 2.220 0 2.220 799 1.421 101 377 112 2.011 156 2.167

year4 2007 14.363 10.498 3.865 0 3.865 1.391 2.474 101 377 56 3.008 19 3.027

year5 2008 16.518 11.706 4.812 0 4.812 1.732 3.080 101 377 0 3.558 28 3.586

year6 2009 20.152 13.650 6.502 0 6.502 2.341 4.161 101 377 0 4.639 47 4.686 2.990 0,4323 3.318

2.424 566

Book values Book value

0,8696 -652

0,7561 -228

0,6575 1.425

0,5718 1.731

0,4972 1.783

-6.187 19%
-6.187 -6.187

-750

-302

2.167

3.027

3.586

7.676

IRR of 19% is higher than Hurdle rate of 15% , so project is profitable)
-750 -6.937 -302 -7.239 2.167 -5.072 3.027 -2.045 3.586 1.541 4.686 9.217

-6.187 -6.187

-652 -6.839

-228 -7.067

1.425 -5.642

1.731 -3.912

1.783 -2.129

2.026 -103