NPV Question company, question, generate, including, following

brk1yn

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

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)

Bluetick1010

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

eagles_dare13

I thought tax implications were ignored for NPV calcuations, no?

- Robert

mnieman

I think cash flows are analyzed on an after-tax.

chetan86

NPV is calculated on after tax basis..so chelseace is correct in his calcuation