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Below is an essay on "Financial" from Anti Essays, your source for research papers, essays, and term paper examples.

Part B:
Question 1:
Table A
Year | Depreciation |
1 | $85,000 x 20%= $17,000 |
2 | $85,000 x 32% = $27,200 |
3 | $85,000 x 19% = $16,150 |
4 | $85,000 x 12% = $10,200 |
5 | $85,000 x 11% = $9,350 |
6 | $85,000 x 6 = $5,100 |
Table B
Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| | | | | | | | | |
Cost ofNew system | $80,000 | | | | | | | | |
Installation cost | $5,000 | | | | | | | | |
Tax saving | - | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 |
Depreciation | - | -$17,000 | -$27,200 | -$16,150 | -$10,200 | -$9,350 | -$5,100 | - | - |
Profit before tax | $85,000 | $8,000 | -$2,200 | $8,850 | $14,800 | $15,650 | $19,900 | $25,000 | $25,000 |
Less: Tax (40%) | - | -$3,200 | -$880 | -$3,540 | -$5,920 | -$6,260 | -$7,960 | -$10,000 | -$10,000 |
Profit AfterTax | $85,000 | $4,800 | $-1,320 | $5,310 | $8,880 | $9,390 | $11,940 | $15,000 | $15,000 |
Add: Depreciation | - | $17,000 | $27,200 | $16,150 | $10,200 | $9,350 | $5,100 | - | - |
After taxCash flow | $85,000 | $21,800 | $25,880 | $21,460 | $19,080 | $18,740 | $17,040 | $15,000 | $15,000 |

NPV= t=1nFCFt1+kt-IO = CF11+r+CF21+r2+…+CFn1+rn-IO
Where: FCFt = the annual free cash flow in time period t
k = the appropriate discount rate; that is; the required rate of return or cost of capital
IO = The initial cash outlay
n = the project’s expected life
From this formula, we have
NPV=   21,8001.1 + 25,8801.12 + 21,4601.13 + 19,0801.14 + 18,7401.15 + 17,0401.16 + 15,0001.17+ 15,0001.18 – 85,000 =   21,311.413
Because NPV > 0   so the project should be accepted
The project’s NPV gives a measurement of the net value of an investment proposal in term of today’s dollar, since all cash flow are discounted back to the present. Comparing the difference between the present value of annual free cash flows and the investment outlay is appropriate. The NPV is the measurement of an investment whether should be accepted or...

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"Financial". Anti Essays. 12 Dec. 2018

<http://snehaedu.com/free-essays/Financial-546233.html>

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Financial. Anti Essays. Retrieved December 12, 2018, from the World Wide Web: http://snehaedu.com/free-essays/Financial-546233.html