Year 0 Year 1

Investment $26,300 -
Sales revenue $13,400
Operating costs 2,900
Depreciation 6,575
Net working capital spending 300 200

Tax rate 22%

Discount rate 12%

Year 0 Year 1
Sales Revenue $13,400
Operating Costs 2,900
Depreciation 6,575
EBT $3,925
Tax $864
PAT $3,062
Investment $26,300
CHANGE Net Working Capital Spending 300 200
ACTUAL Net Working Capital 300 500
CASHFLOWS -$26,600 $9,437
 Year 2 Year 3 Year 4
- -
$15,000 $16,400 $12,900
3,100 4,200 2,800
6,575 6,575 6,575
225 150 ?

Year 2 Year 3 Year 4

$15,000 $16,400 $12,900 $9,637 $9,637
3,100 4,200 2,800
6,575 6,575 6,575
$5,325 $5,625 $3,525
$1,172 $1,238 $776
$4,154 $4,388 $2,750 incremental net income

225 150 -875

725 875 0
$10,504 $10,813 $10,200 incremental cash flows
 Asset investment $ 14,20,000
Estimated annual sales $ 10,90,000
Costs $ 4,75,000
Tax rate 25%
*Depreciation straight-line
to zero over tax life 3
Required return 12%

0 1 2
Sales 1090000 1090000
Costs 475000 475000
Depreciation 473333.3333 473333.3333
EBT 141666.6667 141666.6667
TAX 35416.666675 35416.666675
PAT 106250.000025 106250.000025
Investment -1420000
Cash Flows -1420000 579583.333325 579583.333325
df 1 0.89285714286 0.79719387755
NPV -27938.63

Varun
Tax rate
Required return
Initial fixed inve 1.42 million $ NPV?
Sales / Revenue 1.09 million $
Cost 0.475 million $ 1,420,000.00
Depreciation 3 years
Depreciation per 0.473 million $ / year

Annuity Factor f PVIFA 2.401831268

OCF 0.5796 million $ each year (sales - cost)*(1-tc)+tc*depreciation

NPV -0.028 million $ each year

Option 2
For NPV = 0, 0 = Initial Investment + OCF*PVIFA

OCF*PVIFA '= 1.42 million $

OCF = 0.59 million $ each year

Year 0 Year 1 Year 2 Year 3

Operating cash flow 0.59 0.59 0.59
Initial Investment -1.42 - - -
Total cash flow -1.42 0.59 0.59 0.59

NPV -0.27
 OCF = PAT + Dep + ChgNWC + Investment
OCF = PAT + Dep + ChgNWC
3 OCF = EBT*(1-Tax) + Dep + ChgNWC
1090000 OCF =(Sales-Cost-Dep)*(1-Tax) + Dep + ChgNWC
475000 OCF =Sales*(1-Tax)-Cost*(1-Tax)+Tax*Dep + ChgNWC
473333.3333
141666.6667 if OCFs are same, NPV = Investment + PVIFA*OCF
35416.666675
106250.000025

579583.333325
0.71178024781

25%
12%

s - cost)*(1-tc)+tc*depreciation
Installation cost $ 3,75,000
Pretax salvage value $25,000
Operating cost per year $95,000
Initial NWC $15,000
Tax rate 24%
Discount rate 10%
*Depreciation straight-line NAME ?
over life 5 VARUN

0 1
Investment -375000
Saving 95000
OP Cost 0
Dep 75000
Net working capital spending -15000 0

Income before tax and dep 95000

Other Income
Income after dep 20000
tax 4800
Net income 15200

Cash flow 90200

Rate 0.1
0.909090909091
-390000 82000
NPV -26959.71

Javed
Initial Installed cost 375,000
Depreciated Straight line 5
NWC Spending 15,000
scarapped System Value 25000
Operating cost 95000
 Annual Depreciation 75,000

Scrapped Value 25,000

After Tax 19,000

OCF 90,200

NPV

Nitin
0 1 2
Dep 75000 75000
Savings in OC 95000 95000
OCF 90200 90200
Cost -375000
Salvage Value after Tax
Intial NWC -15000
Total Cas Flow -390000 90200 90200
NPV @ 10% -390000 82000 74545.45
 2 3 4 5
25000
95000 95000 95000 95000
0 0 0 0
75000 75000 75000 75000
0 0 0 15000

95000 95000 95000 95000

25000
20000 20000 20000 45000
4800 4800 4800 10800
15200 15200 15200 34200

90200 90200 90200 124200

0.1 0.1 0.1 0.1

0.826446280991735 0.751314800902 0.683013455365 0.620921323059
74545.4545454545 67768.59504132 61607.81367393 77118.42832395

Years tax rate 24 %

Int Rate 10 %
initial investment - Networking capital+OCF with Annuity interest factor+recovery of NWC and Salvage value

Initial Installed cost -375,000

NWC Spending -15,000
OCF PVIFA 341,929
salvage Vaue & Reco 27,321
Net NPV -20,750

3 4 5
75000 75000 75000
95000 95000 95000
90200 90200 90200 PVIFA(0.10,5)

19000
15000
90200 90200 124200
67768.6 61607.81 77118.43 -26959.71
 AJMAL

Installed cost 375000

Depreciation per year 75000
Salvage value after 5 years 25000
After tax salvage value 19000
Pretax Income 95000 per year
Initial investment in NWC 15000
Tax Rate 24%
Discount Rate 10%
NPV?
Option 2
EBIT 20000 Income after tax
'Depreciation 75000 Depreciation
Taxes 4800 OCF
OCF 90200

Yr 0 Yr 1 Yr 2 Yr 3
OCF 90200 90200 90200
Capital Spendings -375000
NWC -15000
Total Cash Flow -390000 90200 90200 90200

NPV -26,959.71 WHO ?

overy of NWC and Salvage value

$3.79 $341,928.97
 72200
18000
90200

Yr 4 Yr 5
90200 90200
19000
15000
90200 124200
Initial investment $ 41,00,000
Sales $ 23,50,000
*Depreciation straight-line
over life 4
Operating expenses 25%
Net working capital $ 1,50,000
Tax rate 25%
Required return 13%

CORRECT
Vipul
Tax 0.25
Year 0
Initial cost 4100000
1762500 Sales
256250 Depreciation
440625 Costs
1578125 Change NWC -150000
OCF -4250000
RoR 0.13
df 1
NPV $536,085.37

Pankaj
Tax 0.25
0
Initial cost 4100000
Sales
Depreciation
Costs
NWC -150000
OCF -4250000
RoR 0.13
NPV 536085.369775
Varun

Machinary cost 4.1 million $

NWC 0.15 million $
Sales 2.35 million $ per yr
cost 0.59 million $ per yr
Depreciation 1.025 million $ per yr

Income before Tax 0.74 million $ per yr

Taxes 0.18 million $ per yr
Net Income 0.55 million $ per yr

OCF Net Income + Depreciation

1.58 million $ per yr

PVIFA 2.97

Investment -4.25

NPV 0.54

NPV>0; company should invest in the project

Nitin
Cost 4100000 Tc
r

0 1 2
Sales Revenue 2350000 2350000
Operating Cost 587500 587500
Deprication 1025000 1025000
OCF 1578125 1578125
Spending -4100000
NWC -150000
Total Cash Flow -4250000 1578125 1578125

Shikhar
Y0 Y1 Y2
Initial Investment -4100000
Sales 2350000 2350000
Depreciation 1025000 1025000
COGS and other expenses 587500 587500
Tax calculation 184375 184375
Net incremental income 553125 553125
NCW -150000
Incremental cash flow -4250000 1578125 1578125

NPV 536085.3698
 1 2 3 4

2350000 2350000 2350000 2350000

1025000 1025000 1025000 1025000
587500 587500 587500 587500
150000
1578125 1578125 1578125 1728125

0.88495575221 0.78314668337 0.69305016228 0.61331872768

1 2 3 4

2350000 2350000 2350000 2350000

1025000 1025000 1025000 1025000
587500 587500 587500 587500
150000
1578125 1578125 1578125 1728125
 25%
13%

3 4
2350000 2350000
587500 587500
1025000 1025000
1578125 1578125 PVIFA(0.10,4) 2.974471326 4694088

150000 NPV $536,085.37

1578125 1728125

Y3 Y4

2350000 2350000
1025000 1025000
587500 587500
184375 184375
553125 553125
150000
1578125 1728125
 Techron I :
Cost $ 2,65,000
Operating costs per year $41,000
Life 3
Techron II :
Cost $ 3,30,000
Operating costs per year $52,000
Life 5
Both:
Salvage value $25,000
Tax rate 21%
Discount rate 9%
*Depreciation straight-line

Amit
Techron I
Investment 265000 Investment
NWC Salesrevenue
Sales Operatingcosts
perating Cost 41000 Contribution
Time 3 Depreciation
Tax 0.21 After depriciation(Profit before tax)
ROR 0.09 Tax
Scrap Value 25000 19750 Incremental Net income
Adding Depric.
Oper. Cash Flow(Adding Depr.)
NWC
Incremental cash

NPV
PVIFA
EAC

Techron II
Investment 330000 Investment
NWC Salesrevenue
Sales Operatingcosts
perating Cost 52000 Contribution
Time 5 Depreciation
Tax 0.21 After depriciation(Profit before tax)
ROR 0.09 Tax
Scrap Value 25000 19750 Incremental Net income
Adding Depric.
Oper. Cash Flow(Adding Depr.)
NWC
Incremental cash

NPV
PVIFA
EAC

We select Techron II as it has lower EAC

Pankaj
Tax rate 0.21 Disc. rate 0.09
Techron 1 0 1 2 3
Initial cost -265000
Pretax cost 41000 41000 41000
Aftertax cost 32390 32390 32390
Depreciation 88333.3333333 88333.3333333 88333.3333333
PV of expenses -346988.634231357
EAC -137079.510692169

Techron 2 0 1 2 3
Initial cost -330000
Pretax cost 52000 52000 52000
Aftertax cost 41080 41080 41080
Depreciation 66000 66000 66000
PV of expenses -489786.873898489
EAC -125920.510795726
Techron 2 is preferable
 Year0 Year1 Year2 Year3
$265,000
$0 $0 $0
41,000 41,000 41,000
-41,000 -41,000 -41,000
88,333 88,333 88,333
depriciation(Profit before tax) -129,333 -129,333 -129,333
-27,160 -27,160 -27,160
mental Net income -102,173 -102,173 -102,173
-13,840 -13,840 -13,840
Cash Flow(Adding Depr.) -13,840 -13,840 -13,840
0 0
-265000 -13,840 -13,840 5,910

-$284,782.49
$2.53
-112504.6792 CORRECT

Year0 Year1 Year2 Year3 Year4 Year5

 $330,000
$0 $0 $0 $0 $0
52,000 52,000 52,000 52,000 52,000
-52,000 -52,000 -52,000 -52,000 -52,000
66,000 66,000 66,000 66,000 66,000
depriciation(Profit before tax) -118,000 -118,000 -118,000 -118,000 -118,000
-24,780 -24,780 -24,780 -24,780 -24,780
mental Net income -93,220 -93,220 -93,220 -93,220 -93,220
-27,220 -27,220 -27,220 -27,220 -27,220
Cash Flow(Adding Depr.) -27,220 -27,220 -27,220 -27,220 -7,470
0 0
-330000 -27,220 -27,220 -27,220 -27,220 -7,470

-$423,040.16
$3.89
-108760.4 CORRECT

Ajmal

Techron I
0
Cost 265000
Dep
Salvage value
Operating cost
Net salvage Value
Corporate Tax
Total cash flow -265000
PV of future cash flow
4 5 NPV -284782
Using annuity formula to calcuate C which is EAC
52000 52000 PVIAF9%,3 2.531295
41080 41080 EAC= -112505
66000 66000
Techron II
0
Cost 330000
Dep
Salvage Value
Operating cost
Net Salvage Value
Corporate Tax
Total cash flow -330000
PV of future cash flow
NPV -423040
Using annuity formula to calcuate C which is EAC
PVIAF9%,5 3.889651
EAC= -108760

Tax rate 21%

Discount rate 9%
 Investment -330000
Saving
OP Cost 52000 52000 52000 52000
Dep 66000 66000 66000 66000
Net working capit 0 0 0 0 0

Income before tax and dep -52000 -52000 -52000 -52000

Income after dep -118000 -118000 -118000 -118000
tax -24780 -24780 -24780 -24780
Net income -93220 -93220 -93220 -93220

Cash flow -27220 -27220 -27220 -27220

Rate 0.09 0.09 0.09 0.09

1.09 1.1881 1.295029 1.411582
-93040.2 -24972.5 -22910.5 -21018.8 -19283.3
NPV -423040
EAC -108760

1 2 3

88333.33 88333.33 88333.33

25000
41000 41000 41000
19750
-27160 -27160 -27160
-13840 -13840 5910
-12697.2 -11648.9 4563.604

o calcuate C which is EAC

1 2 3 4 5

66000 66000 66000 66000 66000

25000
52000 52000 52000 52000 52000
19750
 -24780 -24780 -24780 -24780 -24780
-27220 -27220 -27220 -27220 -7470
-24972.5 -22910.5 -21018.8 -19283.3 -4854.99

o calcuate C which is EAC

EAC is less this should be selected

 25000

52000
66000
0

-27000
-93000
-19530
-73470

-7470

0.09
1.538624
-4854.99
 Machine cost $ 6,70,000
Annual pretax cost savings $ 2,45,000
Salvage value $55,000
Inventory cost $20,000
Inventory cost per year $2,500
Tax rate 23%
Discount rate 8%
*Depreciation staight-line

Bhoomika
Year 0 1 2
Investement in new machine par -670000
Investment in additional invento -20000 -2500 -2500
Pretax cost savings 245000 245000
Tax rate applied -56350 -56350
Depreciation tax-shield 154100
Salvage value
Tax on salvage value
Net cash flow -690000 340250 186150
Discount Factor 1 0.92592592593 0.8573388203
Present Value -690000 315046.296296 159593.621399

NPV 120799.9406

Amit
Depri.

Investment 670000 Investment

NWC 20000 Salesrevenue
Sales 245000 Operatingcosts
Cost % of goods sold Contribution
Time 4 Depreciation
Tax 0.23 After depriciation(Profit before tax)
ROR 0.08 Tax
Scrap Value 55000 Incremental Net income
Inventory 2500 Adding Depric.
Oper. Cash Flow(Adding Depr.)
 NWC
Incremental cash

NPV

Pankaj
Tax rate 0.23 Disc rate
0 1 2 3
Initial cost -670000
Pretax saving 245000 245000 245000
Depreciation 134000 214400 128640
After tax Salvage value
Inventory invest -20000 -22500 -25000 -27500
OCF -690000 196970 212962 190737.2
NPV $98,614.50

Javed
ANS 13 Cost Cutting proposal
Investment -670,000
Depreciation 5 years staright l 5 years
Deprciation cost per year 134,000
Pretax savings 245,000
salvage value 55,000
Book value as per staright li 134,000
Corporate Tax 23 %
Discount arte 8%
After tax value 73,170
Initial investment for spare parts -20000 Every year
Additional inventory -2500 Every year
OCF 219,470

NPV
Investment Y0 -670,000 -670,000
Initial investment for spare parts Y0 -20000 -20000
OCF 5 years Discounting Y1 216,970 200,898.15
Y2 216,970 186,016.80
Y3 216,970 172,237.78
Y4 316,640 232,739.85

NPV 101,893
 3 4

-2500
245000 245000
-56350 -56350

55000
12650
186150 256300
0.79383224102 0.7350298528
147771.871666 188388.151272

0.2 0.32 0.192 0.1152

Year0 Year1 Year2 Year3 Year4
$670,000
$245,000 $245,000 $245,000 $245,000
0 0 0 0
245,000 245,000 245,000 245,000
134,000 214,400 128,640 77,184
depriciation(Profit before tax) 111,000 30,600 116,360 167,816
25,530 7,038 26,763 38,598
mental Net income 85,470 23,562 89,597 129,218
219,470 237,962 218,237 206,402
Cash Flow(Adding Depr.) 219,470 237,962 218,237 206,402
 20000 2500 2500 2500 -27500
-690000 216,970 235,462 215,737 302,881

$106,654.44

0.08
4

245000
77184 554224 total dep.
68978.48 115776 book value
95000
370380.8
Scrap Value 55000
Book Value 115,776
Gain -60,776
Tax -13978.48
Final Salvage 68978.48
System A:
Cost $ 2,65,000
Pretax annual operating cost $73,000
Life 4
System B:
Cost $ 3,80,000
Pretax annual operating cost $64,000
Life 6
Both:
Tax rate 23%
Discount rate 7.50%
*Depreciation staight-line

Nishesh

Q15
in $ Thousand
Year

1 Investment
2 Sales revenue
3 Operating costs
4 Depreciation
5 Net WC spend

2+3+4 6 Income before tax

7 Tax @ 21%
6-7 8 Net Income

2+3-7 9 Cashflow from ops

1+5 10 Total Cashflow of investment
9+10 11 CF of project

13 NPV

Interest rate
 0 1 2 3 4

-265

-73 -73 -73 -73

-66.25 -66.25 -66.25 -66.25

-139.25 -139.25 -139.25 -139.25

-29.24 -29.24 -29.24 -29.24
-110.01 -110.01 -110.01 -110.01

-43.76 -43.76 -43.76 -43.76

-265 0 0 0 0
-265 -43.76 -43.76 -43.76 -43.76

-411.56

0.075
 in $ Thousand
Year 0 1 2

1 Investment -380
2 Sales revenue
3 Operating costs -64 -64
4 Depreciation -63.33 -63.33
5 Net WC spend

6 Income before tax -127.33 -127.33

7 Tax @ 21% -26.74 -26.74
8 Net Income -100.59 -100.59

9 Cashflow from ops -37.26 -37.26

10 Total Cashflow of investment -380 0 0
11 CF of project -380 -37.26 -37.26

13 NPV -554.89

Interest rate 0.075

 3 4 5 5

-64 -64 -64 -64

-63.33 -63.33 -63.33 -63.33

-127.33 -127.33 -127.33 -127.33

-26.74 -26.74 -26.74 -26.74
-100.59 -100.59 -100.59 -100.59

-37.26 -37.26 -37.26 -37.26

0 0 0 0
-37.26 -37.26 -37.26 -37.26
 Nitin
Machine A: Machine A
Cost $ 19,80,000 Investment
Variable costs 35% Sales
Fixed costs $ 1,87,000 Variable Cost%
Life 6 Fixed Cost
Machine B: Operating Cost
Cost $ 54,00,000 Depriciation
Variable costs 30%
Fixed costs $ 1,45,000 Tax Rate
Life 9 Discount Rate
Both: Years
Sales $ 1,24,00,000
Tax rate 21%
Discount rate 10% PVIFA
*Depreciation staight-line
 Machine A
4980000 0 1 Investment
12400000 Investment 4980000 Sales
0.35 Sales 12400000 Variable Cost%
187000 Variable Cost 4340000 Fixed Cost
Fixed Cost 187000 Operating Cost
830000 Operating Cost 4527000 Depriciation
(Depriciation) 830000
0.21 EBT 7043000 Tax Rate
0.1 1.1 (Tax) 1479030 Discount Rate
6 Net Income 5563970 Years

4.355260699 OCF 4980000 6393970 PVIFA

NPV 22867406.25
EAC 5250525.246
 Machine B
5400000 0 1
12400000 Investment 5400000
0.3 Sales 12400000
145000 Variable Cost 3720000
Fixed Cost 145000
600000 Operating Cost 3865000
(Depriciation) 600000
0.21 EBT 7935000
0.1 1.1 (Tax) 1666350
9 Net Income 6268650

5.759023816 OCF 5400000 6868650

NPV 34156718.93
EAC 5930991.089
Initial investme$ 4,35,000
Year 1 nominal$ 2,75,000
Year 1 nominal $87,000
Revenue & Expe 3%
Nominal salvag $55,000
Net working cap $15,000
Tax rate 21%
Real cash flow $ 3,45,000
Real cash flow -3%
Real required r 4%
Cost $97,000
Operating costs $10,600
Life 3
Salvage value $7,500
Tax rate 23%
Discount rate 12%
*Depreciation straight-line
Cost of new ma$ 3,85,000
Years of operat 5
Pretax salvage $30,000
Saved salaries $90,000
Reduction in $70,000
Tax rate 22%
Discount rate 9%
*Depreciation straight-line
First year quant 10,400
Growth rate in 8%
Net working cap $45,000
Fixed costs $ 1,25,000
Variable costs $19
Unit price $61
Initial investme$ 5,75,000
Tax rate 21%
Required return 18%
*Depreciation straight-line
Original cost of land
Current land value $ 9,00,000
Land value in 4 years $ 12,00,000
Marketing study
Year 1 sales 7,100
Year 2 sales 7,900
Year 3 sales 9,200
Year 4 sales 6,100
Sales price $305
Fixed costs $ 3,75,000
Variable costs 15%
Equipment costs $ 34,00,000
Pretax salvage value $ 3,10,000
Net working capital $ 2,25,000
Tax rate 23%
Required return 13%
Depreciation straight line