| | 1) What is the operating cash flow in year 1-5? |
| | Operating Cash Flows | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| | Sales (W-1) | 260,000 | 273,000 | 286,650 | 300,983 | 316,032 |
| | Variable operating costs | (195,000) | (204,750) | (214,988) | (225,737) | (237,024) |
| | Fixed operating costs | (25,000) | (25,000) | (25,000) | (25,000) | (25,000) |
| | Cash profits before tax | 40,000 | 43,250 | 46,663 | 50,246 | 54,008 |
| | Tax on cash profits (40%) | (16,000) | (17,300) | (18,665) | (20,098) | (21,603) |
| | Tax depreciation allowance (W-2) | 12,000 | 19,200 | 11,520 | 6,912 | 6,912 |
| | Net Operating Cash Flows | 36,000 | 45,150 | 39,518 | 37,059 | 39,317 |
| | (W-1) |
| | Year - 1 (Given) | 260,000 |
| | Year - 2 (260,000 × 1.05) | 273,000 |
| | Year - 3 (273,000 × 1.05) | 286,650 |
| | Year - 4 (286,650 × 1.05) | 300,983 |
| | Year - 5 (300,983 × 1.05) | 316,032 |
| | (W-2) | Bal. B/Fwd | MACRS Dep. Rate | MACRS Dep. | Tax Saving (40%) |
| | Year 0 | 150,000 |
| | Year 1 | 120,000 | 20.00% | 30,000 | 12,000 |
| | Year 2 | 72,000 | 32.00% | 48,000 | 19,200 |
| | Year 3 | 43,200 | 19.20% | 28,800 | 11,520 |
| | Year 4 | 25,920 | 11.52% | 17,280 | 6,912 |
| | Year 5 | 8,640 | 11.52% | 17,280 | 6,912 |
| | Year 6 | | 5.76% | - 0 | - 0 |
| | Total | | 100.00% | 141,360 | 56,544 |
| | 2) What is the initial outlay in year 0? |
| | Particulars | $ |
| | Purchase price | 120,000 |
| | Installation costs | 30,000 |
| | Working capital | 10,000 |
| | Total initial outlay | 160,000 |
| | 3. What is the after tax salvage at the terminal year? |
| | Terminal Cash flows | Year 5 |
| | Sale proceeds (W-3) | 50,000 |
| | Recovery of working capital | 10,000 |
| | Tax paid on gain on sale (W-3) | (16,544) |
| | After tax salvage | 43,456 |
| | (W-3) |
| | Carrying value - End of year 5 | 8,640 |
| | Sale proceeds - | 50,000 |
| | Gain on sale | 41,360 |
| | Tax paid on gain on sale | 16,544 |
| | 4) Calculate NPV, IRR, and PI for the project. |
| | | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| | Initial outlay | (160,000) |
| | Operating cash flows | | 36,000 | 45,150 | 39,518 | 37,059 | 39,317 |
| | Terminal cash flows | | | | | | 43,456 |
| | Net cash flows | (160,000) | 36,000 | 45,150 | 39,518 | 37,059 | 82,773 |
| | NPV | 17,341 |
| | IRR | 13.52% |
| | PI | 1.11 |
mae243
Thisisanexampleofhowitshouldbe.xlsx
