Homework Answers
| IRR | 7.54% |
| NPV | ($1,022,855.23) |
| Payback | 4.47 |
Workings
| The Annual operating cash flows are as below | ||||||
| OCF | SL | |||||
| Year | Cash flows | Depreciation | EBIT | Tax | PAT | OCF |
| 1 | 5000000 | 3200000 | 1800000 | 720000 | 1080000 | 4280000 |
| 2 | 5000000 | 3200000 | 1800000 | 720000 | 1080000 | 4280000 |
| 3 | 5000000 | 3200000 | 1800000 | 720000 | 1080000 | 4280000 |
| 4 | 5000000 | 3200000 | 1800000 | 720000 | 1080000 | 4280000 |
| 5 | 5000000 | 3200000 | 1800000 | 720000 | 1080000 | 4280000 |
| Salvage | |
| Purchase price | 19000000 |
| Less: Depreciation | 16000000 |
| Closing book value | 3000000 |
| Selling price | 5,000,000.00 |
| Gain/(loss) | 2000000 |
| Tax/ (Saving) | 800000 |
| Net salvage | 4200000 |
| Finally the Net cash flows | ||||||
| Year | Initial cash flow | OCF | Working capital | Salvage | Net cash flows | Cumulative CF |
| 0 | -19000000 | -4000000 | -23000000 | -23000000 | ||
| 1 | $4,280,000.00 | 4280000 | -18720000 | |||
| 2 | $4,280,000.00 | 4280000 | -14440000 | |||
| 3 | $4,280,000.00 | 4280000 | -10160000 | |||
| 4 | $4,280,000.00 | 4280000 | -5880000 | |||
| 5 | $4,280,000.00 | 4000000 | 4200000 | 12480000 | 6600000 | |
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