In: Finance
Consider the following debt-free project for a machine: Physical Lifespan 5 years Capital Expense, Year 0 $13,000 EBITDA / Year $8,000 Cost of Capital 5.3% Tax Rate 22% Depreciation Life 4 years What is the value of this project? Note: Report answer to 4 decimal places, no rounding.
Time line | 0 | 1 | 2 | 3 | 4 | 5 | |
Cost of new machine | -13000 | ||||||
=Initial Investment outlay | -13000 | ||||||
EBIDTA | 8000 | 8000 | 8000 | 8000 | 8000 | ||
-Depreciation | Cost of equipment/no. of years | -3250 | -3250 | -3250 | -3250 | 0 | |
=Pretax cash flows | 4750 | 4750 | 4750 | 4750 | 8000 | ||
-taxes | =(Pretax cash flows)*(1-tax) | 3705 | 3705 | 3705 | 3705 | 6240 | |
+Depreciation | 3250 | 3250 | 3250 | 3250 | 0 | ||
=after tax operating cash flow | 6955 | 6955 | 6955 | 6955 | 6240 | ||
Total Cash flow for the period | -13000 | 6955 | 6955 | 6955 | 6955 | 6240 | |
Discount factor= | (1+discount rate)^corresponding period | 1 | 1.053 | 1.108809 | 1.1675759 | 1.2294574 | 1.2946186 |
Discounted CF= | Cashflow/discount factor | -13000 | 6604.938 | 6272.496 | 5956.7863 | 5656.9671 | 4819.9522 |
NPV= | Sum of discounted CF= | 16311.1399 |