Question

• •For a 3 year project, the following estimates are provided:
• •Purchase price=$700M. Resale (SV) =$450M. Income/yr=$500M. Expenses=$350M/yr. Depreciation=20% (half yr. rule applicable).
• •Loan = $550M, to be repaid in 3 years @ 8% interest rate. Tax rate = 40% and MARR (after tax) = 9%.
• •Find the Net Present Worth (after-tax)

I NEED A STEP BY STEP AND DETAILED HANDWRITTEN SOLUTION

Answer 1

Answer to the question

Calculation of Net present Worth after tax:

Particular	Amount in million $
Income per year	500
Expenses	350
Contribution i.e. EBITDA	150
Less: Depreciation (700-450)*20%	50
EBIT	100
Interest	44
EBT	56
Tax @40%	22.40
EBT	33.60
Add: Depreciation	50
Free Cash Flow	83.60
PVAF of 9% for 3 years	2.53129
PV of future cash flow	211.61
Add: PV of Resale value at year end 3
(450 * PVIF @9% for 3 years i.e. 0.7722	347.49
Total Cash Flow	559.10
Less: Initial Purchase Price	700
Net present worth after tax	($140.90)