Question

Nil

Answer 1

A) Initial Cash outflow at time 0 = cost of new laptops + working capital

= 2,400,000 + 100,000

= ($2,500,000)

B) Cash inflow from year 1 to 3

Sales = 1,800,000

(-)cost (50% of sales)= (900,000)

EBITDA= 900,000

(-)depreciation = (550,000)

EBT = 350,000

(-) Taxes = (140,000)

Net profit = 210,000

+ depreciation = 550,000

Net operating cash flow = $760,000

Notes:-

Depreciation = 2,400,000 - 200,000 / 4

= 2,200,000 / 4

= 550,000

Tax = 40% × 350,000 = 140,000

C) Cash flow in year 4

Sales= 2,400,000

(-) Cost = (900,000)

EBITDA= 900,000

(-) depreciation= (550,000)

EBT= 350,000

(-) Taxes = (140,000)

Net profit = 210,000

(+) depreciation = 550,000

(+) working capital = 100,000

(+) After tax salvage value = 120,000

Net cash flow = $980,000

Notes:-

After tax salvage value = 200,000 (1-0.40)

= 200,000 (0.6)

= 120,000

D) Using financial calculator to calculate the net present value

inputs: C0= -2,500,000

C1= 760,000. Frequency= 3

C2= 980,000. Frequency= 1

I= 12%

Npv= compute

We get, Npv of the project as - $51,800.52

As the Npv is negative , it is not worth taking the project

Note:- we dont take into consideration the interest because it is already included in discounting rate.