In: Finance
Consider a firm with the following Parameters:
Physical Lifespan | 4 Years |
Capital Expense, Year 0 | $9,000 |
EBITDA/Year | $9,000 |
Overall Firm Cost of Capital | 5.6% |
Tax Rate | 35% |
Loan | $18,000 |
Interest Payments | $737 |
Depreciation Project Life | 6 Years |
What is the total PV of this firm, including the loan?
Compute the annual depreciation, using the equation as shown below:
Annual depreciation = Capital expenses/ Estimated life
= $9,000/ 4 years
= $2,250
Hence, the annual depreciation is $2,250.
Compute the present value of the firm, using MS-excel as shown below:
The result of the above excel table is as follows:
Hence, the total present value of the firm is ($5,463.3994).