Step 1: Calculate the Present Value of Cost @ 16%:
Calculation of PV Factor = 1/(1+r)^t |
r = 16% |
t= Year |
Year | Outflow/ (Inflow) | PV Factor @ 16% | Present Value of Outflow/ (Inflow) |
0 | 150000 | 1.00 | 150000.00 |
1 | 54000 | 0.8621 | 46551.72 |
2 | 54000 | 0.7432 | 40130.80 |
3 | 54000 | 0.6407 | 34595.51 |
4 | 54000 | 0.5523 | 29823.72 |
5 | 54000 | 0.4761 | 25710.10 |
6 | 54000 | 0.4104 | 22163.88 |
7 | 54000 | 0.3538 | 19106.79 |
8 | 54000 | 0.3050 | 16471.37 |
9 | 54000 | 0.2630 | 14199.46 |
10 | 54000 | 0.2267 | 12240.91 |
11 | 54000 | 0.1954 | 10552.51 |
12 | 54000 | 0.1685 | 9096.99 |
12 | -15000 | 0.1685 | -2526.94 |
Total | 428116.85 |
Present Value of Outflow /(Inflow): 428116.85
Step 2: Cumulative Present Value Factor for 12 Years @ 16%:
Sum of PV factor from year 1 to 12 Years as given above =5.1917
Step 3: Calculation of required minimum revenue per annum:
Required revenue per annum= NPV of Cash outflow/ Cumulative PV factor for 12 years @ 16%
= 428116.85/5.1917
Required minimum annual after tax revenue =82375.99 or say $ 82376
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