Question

A project has an initial requirement of $205,268 for new equipment and $14,020 for net working capital. The installation costs to get the new equipment in working condition are 14,481. The fixed assets will be depreciated to a zero book value over the 5-year life of the project and have an estimated salvage value of $77,779. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $80,130 and the cost of capital is 15% What is the project's NPV if the tax rate is 39%?

Answer 1

Year	Formula	0	1	2	3	4	5
New Equipment		-205,268.00	0.00	0.00	0.00	0.00	0.00
Net working capital		-14,020.00	0.00	0.00	0.00	0.00	14,020.00
Installation Cast		-14,481.00	0.00	0.00	0.00	0.00	0.00
Salvage Value		0.00	0.00	0.00	0.00	0.00	77,779.00
Operating cash flow post tax		0.00	66,019.72	66,019.72	66,019.72	66,019.72	66,019.72
Total		-233,769.00	66,019.72	66,019.72	66,019.72	66,019.72	157,818.72
Discounting factor	1/(1.15^N)	1.00	0.87	0.76	0.66	0.57	0.50
PV	Total * discounting factor	-233,769.00	57,408.45	49,920.39	43,409.04	37,746.99	78,463.80
NPV (Sum of all PV)	33179.6748
Workings
Operating cash flow		0.00	80,130.00	80,130.00	80,130.00	80,130.00	80,130.00
Tax	X * .39	0.00	31,250.70	31,250.70	31,250.70	31,250.70	31,250.70
Depreciation tax save	((205268+14481)/5)*0.39	0.00	17,140.42	17,140.42	17,140.42	17,140.42	17,140.42
Operating Cash Flow post Tax	Cash Flow -Tax + Save		66,019.72	66,019.72	66,019.72	66,019.72	66,019.72