Homework Answers
Ans (a) following is the calculation of NPV:
| Year | Cash Flow | pvif @ 10% | Cash flow in Present Value |
| 0 | -6,40,000.00 | 1.0000 | -6,40,000.00 |
| 1.00 | 1,65,000.00 | 0.9091 | 1,50,000.00 |
| 2.00 | 1,80,000.00 | 0.8264 | 1,48,752.00 |
| 3.00 | 1,96,000.00 | 0.7513 | 1,47,254.80 |
| 4.00 | 2,40,000.00 | 0.6830 | 1,63,920.00 |
| Net Present Value of Cash Flow == | -30,073.20 |
Ans (b) Following is the revised expected cash flow after considering the impact of Depreciation:
| Year | Cash Flow | Add: Depreciation Tax Shield=150000*30% tax rate | Revised Cash Flow |
| 1.00 | 1,65,000.00 | 45,000.00 | 2,10,000.00 |
| 2.00 | 1,80,000.00 | 45,000.00 | 2,25,000.00 |
| 3.00 | 1,96,000.00 | 45,000.00 | 2,41,000.00 |
| 4.00 | 2,40,000.00 | 45,000.00 | 2,85,000.00 |
Ans(c) Revised NPV:
| Year | Cash Flow | pvif @ 10% | Cash flow in Present Value |
| 0 | -6,40,000.00 | 1.0000 | -6,40,000.00 |
| 1.00 | 2,10,000.00 | 0.9091 | 1,90,909.09 |
| 2.00 | 2,25,000.00 | 0.8264 | 1,85,940.00 |
| 3.00 | 2,41,000.00 | 0.7513 | 1,81,063.30 |
| 4.00 | 2,85,000.00 | 0.6830 | 1,94,655.00 |
| Net Present Value of Cash Flow == | 1,12,567.39 |
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