So far we have only considered Resources and Costs. We will now add tariffs into the model and look at some financial results.
- Open POTS_5 and save it as POTS_6.
- Double-click on the Telephony Service icon and select Tariffs from the menu.
- Select Rental Tariff.
- Enter 200 as a constant annual Rental Tariff.
- Now select Usage Tariff.
- For Usage Tariff enter a constant of 0.06 per call minute.
- Save and run the model.
Draw a graph of Network Operating Profit. Why do you think that the business makes a loss in the first two years and a profit after that?
Look at the graph of Service Revenue and Operating Charge per Connection. Can you explain the difference between the two lines?
Look at the graph of Network Cash Balance. Note that Net Surplus Cash is positive from 2008 onwards.
Cumulative cash balance is not a good measure by which to judge a project because it takes no account of the time-value of money. Net Present Value is a better measure because future cashflows are discounted, i.e., reduced in value, to give an equivalent in current day terms.
Draw a graph of Network NPV, which shows the Discounted Cashflow up to each year end of the model. The default Discount Rate is 10%. The NPV is positive only in 2009.
Return to the Editor and open the Financial Data dialog (Data/Financial Data). Change the Discount Rate input to 0.2 (i.e., a discount rate of 20%). Run the model again. Note that the NPV, calculated with a discount rate of 0.2, is still not positive at the end of the model run.
You can also draw the graph of Network IRR, showing the Discount Rate that would make the NPV zero by a given year.