In: Finance
a) What is the initial after-tax cash flow?
b) What is the present value of the CCA tax savings?
c) What is the present value of the after-tax operating cash flows?
d) What is the ending after-tax cash flow?
e) What is the NPV of the project?
a) Statement showing initial after-tax cash flow
Particulars | Amount |
Cost of capital asset | -545000 |
Modification cost | -15000 |
Increase in inventory | -50000 |
One time after tax opportunity cost | -36000 |
Initial after-tax cash flow | -646000 |
b) Statement showing depreciation
Year | Opening balance | Depreciation Rates | Depreciation (opening balance x Depreciation rates) |
Closing Balance |
1 | 560000 | 15% | 84000 | 476000 |
2 | 476000 | 30% | 142800 | 333200 |
3 | 333200 | 30% | 99960 | 233240 |
4 | 233240 | 30% | 69972 | 163268 |
5 | 163268 | 30% | 48980 | 114288 |
6 | 114288 | 30% | 34286 | 80001 |
7 | 80001 | 30% | 24000 | 56001 |
8 | 56001 | 30% | 16800 | 39201 |
Statement showing PV of tax shield
Year | Depreciation | Tax Shield @ 40% | PVIF @ 14% | PV |
1 | 84000 | 33600 | 0.8772 | 29473.68 |
2 | 142800 | 57120 | 0.7695 | 43951.99 |
3 | 99960 | 39984 | 0.6750 | 26988.06 |
4 | 69972 | 27989 | 0.5921 | 16571.62 |
5 | 48980 | 19592 | 0.5194 | 10175.55 |
6 | 34286 | 13715 | 0.4556 | 6248.15 |
7 | 24000 | 9600 | 0.3996 | 3836.58 |
8 | 16800 | 6720 | 0.3506 | 2355.80 |
PV of tax shield | 139601.43 |
c) Statement showing PV of after tax operating cash flow
Particulars | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | Total |
Cost of capital asset | |||||||||
Modification cost | |||||||||
Increase in inventory | |||||||||
One time after tax opportunity cost | |||||||||
Operating revenue | 600000 | 600000 | 600000 | 600000 | 600000 | 600000 | 600000 | 600000 | |
Operating expenses | -275000 | -275000 | -275000 | -275000 | -275000 | -275000 | -275000 | -275000 | |
Depreciation | -84000 | -142800 | -99960 | -69972 | -48980 | -34286 | -24000 | -16800 | |
PBT | 241000 | 182200 | 225040 | 255028 | 276020 | 290714 | 301000 | 308200 | |
Tax @ 40% | 96400 | 72880 | 90016 | 102011 | 110408 | 116285 | 120400 | 123280 | |
PAT | 144600 | 109320 | 135024 | 153017 | 165612 | 174428 | 180600 | 184920 | |
Add: Depreciation | 84000 | 142800 | 99960 | 69972 | 48980 | 34286 | 24000 | 16800 | |
Annual after tax cash flow | 228600 | 252120 | 234984 | 222989 | 214592 | 208715 | 204600 | 201720 | |
PVIF @ 14% | 0.8772 | 0.7695 | 0.6750 | 0.5921 | 0.5194 | 0.4556 | 0.3996 | 0.3506 | |
Present value of Annual after tax cash flow | 200526 | 193998 | 158608 | 132027 | 111452 | 95088 | 81766 | 70715 | 1044180 |
d) Statement showing cash inflow from sale of asset
Particulars | Amount |
Selling price of asset at end of year 8 | 42000 |
Book value as at year 8 | 39201 |
Profit | 2799 |
Tax @ 40% | 1120 |
Cash inflow (42000-1120) |
40880 |
Statement showing ending after-tax cash flow
Particulars | Amount |
Cash inflow from sale of asset | 40880 |
Release of WC | 50000 |
Total after tax terminal cash flow | 90880 |
e) Statement showing NPV
Particulars | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | Total |
Cost of capital asset | -545000 | |||||||||
Modification cost | -15000 | |||||||||
Increase in inventory | -50000 | |||||||||
One time after tax opportunity cost | -36000 | |||||||||
Operating revenue | 600000 | 600000 | 600000 | 600000 | 600000 | 600000 | 600000 | 600000 | ||
Operating expenses | -275000 | -275000 | -275000 | -275000 | -275000 | -275000 | -275000 | -275000 | ||
Depreciation | -84000 | -142800 | -99960 | -69972 | -48980 | -34286 | -24000 | -16800 | ||
PBT | 241000 | 182200 | 225040 | 255028 | 276020 | 290714 | 301000 | 308200 | ||
Tax @ 40% | 96400 | 72880 | 90016 | 102011 | 110408 | 116285 | 120400 | 123280 | ||
PAT | 144600 | 109320 | 135024 | 153017 | 165612 | 174428 | 180600 | 184920 | ||
Add: Depreciation | 84000 | 142800 | 99960 | 69972 | 48980 | 34286 | 24000 | 16800 | ||
Annual after tax cash flow | 228600 | 252120 | 234984 | 222989 | 214592 | 208715 | 204600 | 201720 | ||
Release of WC | 50000 | |||||||||
Cash inflow from sale of asset | 40880 | |||||||||
Total Cash flow | -646000 | 228600 | 252120 | 234984 | 222989 | 214592 | 208715 | 204600 | 292600 | |
PVIF @ 14% | 1 | 0.8772 | 0.7695 | 0.6750 | 0.5921 | 0.5194 | 0.4556 | 0.3996 | 0.3506 | |
PV | -646000 | 200526 | 193998 | 158608 | 132027 | 111452 | 95088 | 81766 | 102574 | 430039 |
Thus NPV = 430039$