Question

Asset investment $           250,000 Estimated annual sales $           200,000 Costs $             85,000 Tax rate 35% *Depreciation straight-line to zero over tax life 3 Required return 10% What is projects NPV?

Answer 1

Solution :

The Project's NPV = $ 8,425.37

= $ 8,425 ( when rounded off to the nearest whole number )

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

16.01.2020 - Microsoft Excel ? - ES FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW L Sic O L M N (2) PV Factor @ Discounted Cash 10 % Inflows (8) (9) = (7) * (8) Statement showing calculation of Net Present value of the Project SI.No. Year Particulars Estimated Costs Depreciation Operating Income Tax @ 35% Operating Addback: Cash flow Annual Sales = 250000/3 before tax (5) = (4) * 0.35 income after Depreciation after Tax (1) = 83333.33 (4)= (1) - (2) - (3) tax (3) (7) = (6) + (3) (6) = (4) - (5) 1 Cash Inflow Year 1 $ 200,000.00 $ 85,000.00 $ 83,333.33 $ 31,666.67 $ 11,083.33 $ 20,583.33 $ 83,333.33 $ 103,916.67 2 Cash Inflow Year 2 $ 200,000.00 $ 85,000.00 $ 83,333.33 $ 31,666.67$ 11,083.33 $ 20,583.33 $ 83,333.33 $ 103,916.67 3 Cash Inflow Year 3 $ 200,000.00 $ 85,000.00 $ 83,333.33 $ 31,666.67$ 11,083.33 $ 20,583.33 $ 83,333.33 $ 103,916.67 Total of discounted cash Inflows - (A) - (1) (2) + (3) O Initial Investment - Asset Investment $ 250,000.00 Total of Cash Outflows - (B) Net Present value of the Project = (A) - (B) 0.9091 $ 0.8264 $ 0.7513 $ 94,469.70 85,881.54 78,074.13 258,425.37 250,000.00 250,000.00 8,425.37 1.0000 $ $