Question
In: Finance
Calculate the net present value (NPV) of the investment using your answers from Q2-Q4 and Q6....
Calculate the net present value (NPV) of the investment using your answers from Q2-Q4 and Q6.
I need to also have the formula in my excel answer so I will need to be walked through the formula to use with which numbers to plug in.
| Purchase Price | -$449,900.00 |
| Initial Cost | -$11,468.00 |
| Investment in NWC | -$3,220.00 |
| After-Tax SV | |
| Initial Outlay | -$464,588.00 |
| Project Life | 10 | Tax Rate | |
|
Rate for Single Earning $207,350 a year |
|||
| Initial Outlay from Q2 | -$464,588.00 | 35.00% | |
| Annual Operating Cash Flow |
(Sales-Cost) x (1-tax rate) + (depreciation) x (tax rate) |
||
| Annual Rent | $19,320.00 | ||
| Expenses | $16,321.15 | ||
| Depreciation | $16,360.00 | ||
| Taxes Rate | 0.35 | ||
| Annual Operating Cash Flow (Year 1 - 10) | $7,675.25 | ||
| Question 4 |
(0.5 point). Calculate the terminal cash flow in yr 10 your answers from Q1. |
||
| After Tax Savage Value | SV - t*(SV - BV) | ||
| Savage Value | $494,900.00 | ||
| Tax Rate | 35.00% | ||
| Accumulated Depreciation | |||
| Depreciation Expense | $16,360.00 | ||
| # of Years of Project | 10 | ||
| Accumulated Depreciation Total | $163,600.00 | ||
| BV | |||
| Depreciable Asset (Purchase Price+Inital Cost) | -$461,368.00 | ||
| Accumulated Depreciation | $163,600.00 | ||
| BV Total | -$624,968.00 | ||
| After Tax Savage Value | $102,946.20 | ||
| Terminal Cash Flow | |||
| Recovery of NMW from Q2 | $3,220.00 | ||
| After-Tax Savage Value | $102,946.20 | ||
| Terminal CF | $106,166.20 | ||
| Year | Amount | ||
| 0 | -$464,588 | ||
| 1 | $7,675.25 | ||
| 2 | $7,675.25 | ||
| 3 | $7,675.25 | ||
| 4 | $7,675.25 | ||
| 5 | $7,675.25 | ||
| 6 | $7,675.25 | ||
| 7 | $7,675.25 | ||
| 8 | $7,675.25 | ||
| 9 | $7,675.25 | ||
| 10 | $113,841.45 |
| WACC = |
Wd Rd (1-T) + We Re |
||
| Wd = |
Weight on debt securities |
||
| Rd = |
Cost of Debt (=borrowing rate) |
||
| T |
Corporate Tax Rate |
||
| We = |
Weight on equity securities |
||
| Re = |
Cost of Equity (=expected Return) |
||
| Wd = | 70% | ||
| Rd = | 3.82% | ||
| T | 35% | ||
| We = | 30% | ||
| Re = | 7% | ||
| WACC |
Solutions
Expert Solution
WACC = Wd *Rd(1-t) + We * Re
= 0.7 * 3.82 (1-0.35) + 0.3 * 7
= 3.8381%
Computation of NPV
| Year |
Cash outflow (A) |
Annual operating cash
flow (B) |
Terminal cash flow (C) |
Total cash flows (D)=(A)+(B)+(C) |
PVF @ 3.8381% (E) |
Present value of cash
flows (D)*(E) |
| 0 | (464,588) | - | - | (464,588.00) | 1 | (464,588.00) |
| 1 | - | 7,675.25 | - | 7,675.25 | 0.9630 | 7,391.55 |
| 2 | - | 7,675.25 | - | 7,675.25 | 0.9274 | 7,118.35 |
| 3 | - | 7,675.25 | - | 7,675.25 | 0.8932 | 6,855.23 |
| 4 | - | 7,675.25 | - | 7,675.25 | 0.8601 | 6,601.85 |
| 5 | - | 7,675.25 | - | 7,675.25 | 0.8284 | 6,357.83 |
| 6 | - | 7,675.25 | - | 7,675.25 | 0.7977 | 6,122.83 |
| 7 | 7,675.25 | - | 7,675.25 | 0.7683 | 5,896.51 | |
| 8 | 7,675.25 | - | 7,675.25 | 0.7399 | 5,678.57 | |
| 9 | 7,675.25 | - | 7,675.25 | 0.7125 | 5,468.67 | |
| 10 | 7,675.25 | 106,166.2 | 113,841.45 | 0.6862 | 78,114.76 | |
| Net present value | (328,981.85) |
Hence, net present value of the investment is -$328,981.85
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