Homework Answers
CALCULATION OF NRV
NOTES:
1) Cash flows for the year 1 and 2 in column (b) has been calculated as -( Inflows - outflows )
2) Tax savings due to depreciation is computed as - (Cost of initial investment * depreciation rate) * (1-tax rate)
| Year | Cash Flow | Tax saving on depreciation | Total cash flow | PVF @10% | PV |
| a | b | c | d=b+c | e | f=d*e |
| 0 | -$20,000.00 | $3,200.00 | -$16,800.00 | 1.000 | -$16,800.000 |
| 1 | $40,000.00 | $8,000.00 | $48,000.00 | 0.909 | $43,636.364 |
| 2 | $40,000.00 | $4,800.00 | $44,800.00 | 0.826 | $37,024.793 |
| NPV | $63,861.157 |
Thus NPV for 2 years of recording is $ 63,861.157
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