a. | ||||
Year | Depn.Base | %age Depn. | Annual depn. | Depn.tax shield=Depn.*25% |
1 | 360000 | 0.143 | 51480 | 12870 |
2 | 360000 | 0.245 | 88200 | 22050 |
3 | 360000 | 0.175 | 63000 | 15750 |
4 | 360000 | 0.125 | 45000 | 11250 |
5 | 360000 | 0.089 | 32040 | 8010 |
6 | 360000 | 0.089 | 32040 | 8010 |
311760 | 77940 |
b. Annual cash flows for each year | |||||||
Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
1.Cost of equipmemt | -360000 | ||||||
2.NWC introd.& Recovered | -180000 | 65000 | |||||
3.Income before Depn.&tax | 221000 | 184000 | 154000 | 139000 | 107000 | 97000 | |
4.After-tax income(3*(1-25%) | 165750 | 138000 | 115500 | 104250 | 80250 | 72750 | |
5.Depn.tax shield(Depn.*25%) | 12870 | 22050 | 15750 | 11250 | 8010 | 8010 | |
6.Total annual cash flows(1+2+4+5) | -540000 | 178620 | 160050 | 131250 | 115500 | 88260 | 145760 |
c. Weighted average cost of capital : |
WACC=(Kd*Wt.d)+(Kp*Wt.p)+(Ke*Wt.e) |
ie.(6.20%*30%)+(10.80%*10%)+(15%*60%)= |
11.94% |
d-1. NPV | |||
Annual cash flows as per b.above | |||
Year | C/Fs | PV F at 11.94% | PV at 11.94% |
0 | -540000 | 1 | -540000 |
1 | 178620 | 0.89334 | 159567.63 |
2 | 160050 | 0.79805 | 127727.69 |
3 | 131250 | 0.71293 | 93571.46 |
4 | 115500 | 0.63688 | 73559.84 |
5 | 88260 | 0.56895 | 50215.46 |
6 | 145760 | 0.50826 | 74084.36 |
NPV= | 38726.44 |
d-2.YES | |
As NPV is POSITIVE |
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