Question

There is a new investment project for a pharmaceutical laboratory.
It is required to buy a land of 100 thousand dollars, the construction will be 200 thousand, and in furniture and equipment it will be 150 thousand dollars.
Use depreciation by the LISR method (Construction 5%, Furniture and equipment 10%).
The projected income is $ 300 thousand the first year with increments of 5% each year.
The projected costs are $ 150 thousand with increments of 3%.
The effective tax rate for this business is 30%.
Working capital is the equivalent of one year.
The TREMA to evaluate the project is 10%. Calculate the NPV of the project for a planning horizon of 3 years.

Answer 1

Net Present Value (NPV)

Particular	Year: 1	Year :2	Year : 3
Project Income	300	315	331
(-) Project Cost	150	154.50	159
(-)Depreciation : Construction Furniture & Equipment	10 15	10 15	10 15
Total	125	135.50	147
Tax @ 30%	37.50	40.65	44
Profit After Tax (PAT)	87.50	94.85	103
(+) Depreciation	25	25	25
Net Cash flow ( A)	112.50	119.85	128
P.V @ 10% (B)	0.9091	0.8264	0.7513
Discounted Cash flow	102.27	99	96

Total Present Value = $ 297.27

Total Investment = $ 450

Net Present Value (NPV) = total Present value - total investment

= $ 297.27 - $ 450

= ( $ 152.73 )