Question

Consider the following debt-free project for a machine:

Physical Lifespan	7 years
Capital Expense, Year 0	$14,000
EBITDA / Year	$8,000
Cost of Capital	9.9%
Tax Rate	39%
Depreciation Life	4 years

What is the value of this project?

Carry out calculations to at least 4 decimal places. Enter percentages as whole numbers. Example: 3.03% should be entered as 3.03. Do not include commas or dollar signs in numerical answers.

Answer 1

Tax rate		39%
	Year-0	Year-1	Year-2	Year-3	Year-4	Year-5	Year-6	Year-7
Contribution		8,000	8,000	8,000	8,000	8,000	8,000	8,000
Less: Fixed Cost		-	-	-	-	-	-	-
Less: Depreciation as per table given below		3,500	3,500	3,500	3,500	-	-	-
Profit before tax		4,500	4,500	4,500	4,500	8,000	8,000	8,000
Tax		1,755	1,755	1,755	1,755	3,120	3,120	3,120
Profit After Tax		2,745	2,745	2,745	2,745	4,880	4,880	4,880
Add Depreciation		3,500	3,500	3,500	3,500	-	-	-
Cash Profit After tax		6,245	6,245	6,245	6,245	4,880	4,880	4,880
Cost of macine			14,000
Depreciation			14,000
WDV			-
Sale price			-
Profit/(Loss)			-
Tax			-
Sale price after tax			-
Depreciation		Year-1	Year-2	Year-3	Year-4	Year-5	Year-6	Year-7	Total
Cost		14,000	14,000	14,000	14,000	14,000	14,000	14,000
Dep Rate		25.00%	25.00%	25.00%	25.00%	0.00%	0.00%	0.00%
Deprecaition		3,500	3,500	3,500	3,500	-	-	-	14,000
Calculation of NPV
						9.90%
Year		Captial		Operating cash	Annual Cash flow	PV factor	Present values
0		(14,000)			(14,000)	1.000	(14,000.00)
1				6,245	6,245	0.910	5,682.44
2				6,245	6,245	0.828	5,170.55
3				6,245	6,245	0.753	4,704.78
4				6,245	6,245	0.686	4,280.96
5				4,880	4,880	0.624	3,043.91
6				4,880	4,880	0.568	2,769.71
7		-		4,880	4,880	0.516	2,520.21
					Net Present Value		14,172.56