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Calculate the NPV for the the following projectL Ue straight line depreciation over four - year...

Calculate the NPV for the the following projectL Ue straight line depreciation over four - year period. Assume zero salvage at the end of the four years, with no additional working capital. Calculate the NPV to the nearest cent xx.xx

WACC: 13.1%

Additional investment in fixed assets (depreciable basis) : 100,000

Straight line depreciation rate: 25%

Annual sales revenue (constant for all years) : 75,000

Operating costs ( excl. deprecaiton) (also constant) : 25,000

Tax rate: 21.0%

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Answer #1
Years 0 1 2 3 4
Purchase -100000
Revenue 75000 75000 75000 75000
Less: Costs 25000 25000 25000 25000
Profit 50000 50000 50000 50000
Less: Depreciation 25000 25000 25000 25000
Profit after depreciation 25000 25000 25000 25000
Less: Tax 5250 5250 5250 5250
Profit after Tax 19750 19750 19750 19750
Add back: Depreciation 25000 25000 25000 25000
Net Cash Flow 44750 44750 44750 44750
Discount Factor @ 13.1% 1 0.8842 0.7818 0.6912 0.6112
Present Value 39567 34984 30932 27349
Total Present Value 132831
Net Present value = 132831 - 100000 = 32831
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