Question

1. We are evaluating a project that costs RM604,000, has an 8-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 55,000 units per year. Price per unit is RM36, variable cost per unit is RM17, and fixed costs are RM685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project. Calculate the base-case cash flow and NPV.

pls dont do it in excel or spreadsheet rather do it in formula use normal stepwise

Answer 1

Annual depriciation = 604000/8 = 75,500

Net income before tax and depriciation = {( price - variable cost)*quantity} - fixed cost

= {( 36 - 17)*55000} - 685000 = 19*55000 - 685000

= 360,000

Taxable income = net income before tax and depriciation - depriciation

= 360,000 - 75500

= 284500

Tax paid = 21% * 284,500 = 59745

Income after tax = 284500 - 59745 = 224755

Operating cash flow = profit after tax + depriciation

= 224755 + 75500 = 300255

NPV = −Cost of Project + (Operating cash flow * {1 − (1 + Return)^(−Life)} / Return)

= - 604,000 + ( 300255 * { 1 - (1 + 15%)^(-8)} / 15%)

= - 604,000 + ( 300255 * 4.487)

= - 604000 + 1347,244.18

= RM743244.18