Homework Answers
ANS : (a)NPV of Scanner 1 if completes a tenure of 10 years
NPV=$ 1,30.051.54
(b) NPV of scanner 1 if sold in year 3
NPV=$ -1,86,575.98.
(C) NPV of scanner 2 with a shelf life of 7 years
NPV= $ 4,77,004.02
As the total NPV of selling the machine 1 in 3 year and machine 2 is more so we can purchase the new scanner and sell the old one
Increamental NPV= NPV of Machine 1-NPV of Machine2
= $-186575.98+$477004.02= $ 2,90,428.04
Calculation of NPV
- The calculation excel is given below here we will find the following and present the data in excel as per the same in the corresponding year.
- In cash flow we will deduct the 20% of CCA of the scanner value in written down method i.e
= Machine Value*CCA %= CCA Value
Which will be again reduced from the machine value (Machine value - CCA Value)=New Machine Value*CCA Value
It will be calculated year on years
- After calculating the tax we will add the CCA value again so as to get the accurate value of cash year on year.
- for calculating the present value we will use the formula of
- PV= Cash flow of the year/(1+rate of interest)year
- After Getting the Present value we will add all the present value year on year and we will get the Net Present Value.
- The Excel is as follows for all the Scanners
11) DATA 1
| Calculation of machine 1 IF COMPLETES ITS 10 YEARS | INTEREST RATE | 8% | ||||||||||
| YEAR | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |
| COST PRICE OF SCANNER | $ -5,00,000.00 | |||||||||||
| RESIDUAL VALUE | $ 45,000.00 | |||||||||||
| REVENUE | $ 3,00,000.00 | $ 3,00,000.00 | $ 3,00,000.00 | $ 3,00,000.00 | $ 3,00,000.00 | $ 3,00,000.00 | $ 3,00,000.00 | $ 3,00,000.00 | $ 3,00,000.00 | $ 3,00,000.00 | ||
| COST OF OPERATING | $ -1,80,000.00 | $ -1,80,000.00 | $ -1,80,000.00 | $ -1,80,000.00 | $ -1,80,000.00 | $ -1,80,000.00 | $ -1,80,000.00 | $ -1,80,000.00 | $ -1,80,000.00 | $ -1,80,000.00 | ||
| WORKING CAPITAL | $ -50,000.00 | |||||||||||
| CCA@20% | $ -1,00,000.00 | $ -80,000.00 | $ -64,000.00 | $ -51,200.00 | $ -40,960.00 | $ -32,768.00 | $ -26,214.40 | $ -20,971.52 | $ -16,777.22 | $ -13,421.77 | ||
| GROSS CASH FLOW | $ -5,50,000.00 | $ 20,000.00 | $ 40,000.00 | $ 56,000.00 | $ 68,800.00 | $ 79,040.00 | $ 87,232.00 | $ 93,785.60 | $ 99,028.48 | $ 1,03,222.78 | $ 1,51,578.23 | |
| TAX | $ - | $ 6,000.00 | $ 12,000.00 | $ 16,800.00 | $ 20,640.00 | $ 23,712.00 | $ 26,169.60 | $ 28,135.68 | $ 29,708.54 | $ 30,966.84 | $ 45,473.47 | |
| ADD CCA | $ 1,00,000.00 | $ 80,000.00 | $ 64,000.00 | $ 51,200.00 | $ 40,960.00 | $ 32,768.00 | $ 26,214.40 | $ 20,971.52 | $ 16,777.22 | $ 13,421.77 | ||
| NET TAX CASH FLOW | $ -5,50,000.00 | $ 1,14,000.00 | $ 1,08,000.00 | $ 1,03,200.00 | $ 99,360.00 | $ 96,288.00 | $ 93,830.40 | $ 91,864.32 | $ 90,291.46 | $ 89,033.16 | $ 1,19,526.53 | |
| PRESENT VALUE | $ -5,50,000.00 | $ 1,05,555.56 | $ 92,592.59 | $ 81,923.49 | $ 73,032.57 | $ 65,531.99 | $ 59,129.07 | $ 53,601.95 | $ 48,781.66 | $ 44,538.75 | $ 55,363.91 | |
| NPV | $ 1,30,051.54 | |||||||||||
2)DATA 2
| INTEREST RATE | 8% | ||||
| NPV Calculation of machine 1 IF SOLD ON 3RD YEAR | |||||
| YEAR | 0 | 1 | 2 | 3 | |
| COST PRICE OF SCANNER | $ -5,00,000.00 | ||||
| RESIDUAL VALUE | $ 1,50,000.00 | ||||
| REVENUE | $ 3,00,000.00 | $ 3,00,000.00 | $ 3,00,000.00 | ||
| COST OF OPERATING | $ -1,80,000.00 | $ -1,80,000.00 | $ -1,80,000.00 | ||
| WORKING CAPITAL | $ -50,000.00 | ||||
| CCA@20% | $ -1,00,000.00 | $ -80,000.00 | $ -64,000.00 | ||
| GROSS CASH FLOW | $ -5,50,000.00 | $ 20,000.00 | $ 40,000.00 | $ 2,06,000.00 | |
| TAX | $ - | $ 6,000.00 | $ 12,000.00 | $ 61,800.00 | |
| ADD CCA | $ 1,00,000.00 | $ 80,000.00 | $ 64,000.00 | ||
| NET TAX CASH FLOW | $ -5,50,000.00 | $ 1,14,000.00 | $ 1,08,000.00 | $ 2,08,200.00 | |
| PRESENT VALUE | $ -5,50,000.00 | $ 1,05,555.56 | $ 92,592.59 | $ 1,65,275.87 | |
| NPV | $ -1,86,575.98 | ||||
3)DATA 3
| NPV Calculation of machine 2 | INTEREST RATE | 8% | |||||||
| YEAR | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | |
| COST PRICE OF SCANNER | $ -7,60,000.00 | ||||||||
| RESIDUAL VALUE | $ 1,40,000.00 | ||||||||
| REVENUE | $ 4,85,000.00 | $ 4,85,000.00 | $ 4,85,000.00 | $ 4,85,000.00 | $ 4,85,000.00 | $ 4,85,000.00 | $ 4,85,000.00 | ||
| COST OF OPERATING | $ -1,95,000.00 | $ -1,95,000.00 | $ -1,95,000.00 | $ -1,95,000.00 | $ -1,95,000.00 | $ -1,95,000.00 | $ -1,95,000.00 | ||
| WORKING CAPITAL | $ -20,000.00 | ||||||||
| CCA@20% | $ -1,52,000.00 | $ -1,21,600.00 | $ -97,280.00 | $ -77,824.00 | $ -62,259.20 | $ -49,807.36 | $ -39,845.89 | ||
| GROSS CASH FLOW | $ -7,80,000.00 | $ 1,38,000.00 | $ 1,68,400.00 | $ 1,92,720.00 | $ 2,12,176.00 | $ 2,27,740.80 | $ 2,40,192.64 | $ 3,90,154.11 | |
| TAX | $ - | $ 41,400.00 | $ 50,520.00 | $ 57,816.00 | $ 63,652.80 | $ 68,322.24 | $ 72,057.79 | $ 1,17,046.23 | |
| ADD CCA | $ 1,52,000.00 | $ 1,21,600.00 | $ 97,280.00 | $ 77,824.00 | $ 62,259.20 | $ 49,807.36 | $ 39,845.89 | ||
| NET TAX CASH FLOW | $ -7,80,000.00 | $ 2,48,600.00 | $ 2,39,480.00 | $ 2,32,184.00 | $ 2,26,347.20 | $ 2,21,677.76 | $ 2,17,942.21 | $ 3,12,953.77 | |
| PRESENT VALUE | $ -7,80,000.00 | $ 2,30,185.19 | $ 2,05,315.50 | $ 1,84,315.15 | $ 1,66,371.95 | $ 1,50,870.16 | $ 1,37,340.56 | $ 1,82,605.52 | |
| NPV | $ 4,77,004.02 | ||||||||
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