Question

A project requires an initial investment of $320,000 depreciated straight-line to $0 in 16 years. The investment is expected to generate annual sales of $90,000 with annual costs of $45,000 for 20 years. Assume tax rate of 30% and a discounted rate of 20%. What is the NPV?

-143,415.09

-268,732.79

144,612.34

214272.28

Answer 1

CF = Profit after Tax + Dep

Particulars	Amount	Formula
Initial Investment	320000	Given
Dep Peranum	20000	Cost / Life
Sales	90000	Given
Cost	45000	Given
PBT	25000	Sales - Cost - Dep
Tax @30%	7500	PBT * Tax Rate
PAT	17500	PBT - Tax
CF	37500	PAT + Dep

NPV = PV of Cash Inflows - PV of Cash Outflows

Year	CF	PVF @20%	Disc CF
0	$ -3,20,000.00	1.0000	$ -3,20,000.00
1	$      37,500.00	0.8333	$      31,250.00
2	$      37,500.00	0.6944	$      26,041.67
3	$      37,500.00	0.5787	$      21,701.39
4	$      37,500.00	0.4823	$      18,084.49
5	$      37,500.00	0.4019	$      15,070.41
6	$      37,500.00	0.3349	$      12,558.67
7	$      37,500.00	0.2791	$      10,465.56
8	$      37,500.00	0.2326	$        8,721.30
9	$      37,500.00	0.1938	$        7,267.75
10	$      37,500.00	0.1615	$        6,056.46
11	$      37,500.00	0.1346	$        5,047.05
12	$      37,500.00	0.1122	$        4,205.87
13	$      37,500.00	0.0935	$        3,504.90
14	$      37,500.00	0.0779	$        2,920.75
15	$      37,500.00	0.0649	$        2,433.96
16	$      37,500.00	0.0541	$        2,028.30
NPV			$-1,42,641.48

This value is not there in Options, But I am sure I have calculated corrcetly.

OPtion A is nearest to solution. Difference may be because of rounding off problem