NPV Question

company, question, generate, including, following

Can anyone shed some light on this NPV question?

An analyst gathered the following data about a project:

Costs are $8000 plus $2000 in shipping and installation
For the next five years the project will annually generate $5000.00 in sales and $2000 in costs, not including depreciation.
The project is being depreciated on a straight line basis over five years with no salvage value.
The company's tax rare is 40% and the WACC is 10%.

The projects NPV is closest to:

A.) -$144
B.) $144
C.) $279
D.) $1244

farrukhsadiq

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发表于 2011-7-13 16:45 | 只看该作者

Y 0 1 2 3 4 5

Investment-10000

NCF 3000 3000 3000 3000 3000
Depreciation 2000 2000 2000 2000 2000
Profit 1000 1000 1000 1000 1000
Tax 400 400 400 400 400

Profit after tax 600 600 600 600 600
Depreciation 2000 2000 2000 2000 2000

NCF -10000 2600 2600 2600 2600 2600

PV of CF $9,856.05

investment $(10,000.00)

NPV ($143.95)

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Bluetick1010

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发表于 2011-7-13 16:45 | 只看该作者

sorry copying the excel sheet didnt work.

Anyways, its like this.

1. Calculate profit,

2. Calculate Tax

3. Deduct tax from profit to get profit after tax

4. add back depreciation to profit after tax to find net cash flows

5. discount net cash flows

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eagles_dare13