Question
In: Finance
Vancouver Inc. invests in a new piece of equipment, the Suspension Bridge, costing $140,000 on January...
Vancouver Inc. invests in a new piece of equipment, the Suspension Bridge, costing $140,000 on January 1, 2021. It intends to operate the equipment for five years when the scrap value will be zero. Expected net cash flows from the project are $15,000 in the first and second years and $25,000 for the last three years. The discount rate is 14 per cent and the rate of corporation tax is 35 per cent.
Calculate the project’s post-tax NPV
Solutions
Expert Solution
NPV is the difference between sum of present value of after-tax net cash flows and initial investment.
sum of present value of after-tax net cash flows = year 1 after-tax net cash flows /(1+discount rate) + year 2 after-tax net cash flows /(1+discount rate)2 .... + year 5 after-tax net cash flows /(1+discount rate)5
| Year | Exp. net cash flow | Tax rate | after-tax net cash flow |
| 0 | -$140,000 | -$140,000 | |
| 1 | $15,000 | 35% | $9,750 |
| 2 | $15,000 | 35% | $9,750 |
| 3 | $25,000 | 35% | $16,250 |
| 4 | $25,000 | 35% | $16,250 |
| 5 | $25,000 | 35% | $16,250 |
| Discount rate | 14% | ||
| NPV | -$94,915.73 |
Calculations
jeff jeffy answered 2 years agoRelated Solutions
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