In: Finance
See Income Statement:
Sales | $825,000 |
Less:variable cost[(825,000*55)/100] | $453,750 |
Less: fixed cost | $187,150 |
Less: depriciation | $91,000 |
Earnings before tax(EBT) | $93,100 |
Less:Taxes@35%[(93,100*35)/100] | $32,585 |
Projected net income | $60515 |
If the project costs $2,000,000, lasts for 6 years and the cost of capital is 15%, compute the NPV and IRR for the project.
NPV @15% - ($797,989)
IRR- 3.40%
Calculation of Depreciation-Machinery | |||||||
Year | |||||||
1 | 2 | 3 | 4 | 5 | 6 | ||
Investment | 2000000 | 1909000 | 1818000 | 1727000 | 1636000 | 1545000 | |
Depreciation Rate | |||||||
Depreciation | 91000 | 91000 | 91000 | 91000 | 91000 | 91000 | |
Value at Year End | 1909000 | 1818000 | 1727000 | 1636000 | 1545000 | 1454000 | |
CASH FLOW CALCULATION OF THE PROJECT | |||||||
Year | |||||||
1 | 2 | 3 | 4 | 5 | 6 | ||
Operating Income After Tax -A | 60515 | 60515 | 60515 | 60515 | 60515 | 60515 | |
Depreciation-B | 91000 | 91000 | 91000 | 91000 | 91000 | 91000 | |
Sale of machinery-C* | 1454000 | ||||||
Net Cash Flow -D =(A-B+C) | 151515 | 151515 | 151515 | 151515 | 151515 | 1605515 | |
Cash Flow from Income Side | 151515 | 151515 | 151515 | 151515 | 151515 | 1605515 | |
* We assume that after 6 years we will be able to sell the machinery at written down value | |||||||
Calculation of NPV | Calculation of NPV | Calculation of IRR | |||||
Cash Outflow | Machiney | 2000000 | Machinery | (2,000,000) | |||
2000000 | 0 | (2,000,000) | |||||
Cash In Flow | |||||||
Year | Cash Inflow (A) | Discounting Factor @15%-B | Discounted Cash Flow-C=(A*B) | ||||
1 | 151515 | 0.8696 | 131,752.17 | 1 | 151,515 | ||
2 | 151515 | 0.7561 | 114,567.11 | 2 | 151,515 | ||
3 | 151515 | 0.6575 | 99,623.57 | 3 | 151,515 | ||
4 | 151515 | 0.5718 | 86,629.19 | 4 | 151,515 | ||
5 | 151515 | 0.4972 | 75,329.73 | 5 | 151515 | ||
6 | 1605515 | 0.4323 | 694,108.44 | 6 | 1605515 | ||
1,202,010.22 | |||||||
NPV of the Project is | (797,989.78) | IRR | 3.40% | ||||
Comments: | |||||||
The results obtained above are based on the details provided. In case any information not shared may change the result. |