Qsn 1

EBDIT
LESS DEPRECIATION
EBT
LESS Tax
EAT
add depreciation
net cashflow
pvif
PV
cost of project
NPV
IRR formula

net cashflow
pvif
PV
cost of project
NPV

20
16
4
2
2
16
18
0.9091
16.3638

24
16
8
4
4
16
20
0.8264
16.528

28
16
12
6
6
16
22
0.7513
16.5286

lower rate + npv at lower rate/absolute sum of npv*diffrence btw the rate
when Npv is positive use a higher rate
lets use 15% as higher rate
18
20
0.8696
0.7561
15.6528
15.122

IRR

22
0.6575
14.465

10+3.1976/3.9178*5

Question 2

investment
project life
salvage value
REVENUE
VARIABLE COST
FIXED PRODUCTION COST
COST OF CAPITAL
TAX

UNITS
REVENUE
LESS VARIABLE COST
LESS FC
EBDIT
DEPRECIATION
EBT
TAX

6,000,000.00
5yrs
1,500,000.00
600
240
600,000.00
10%
0.3
1
8,000
4,800,000
1,920,000
600,000
2,280,000
1,200,000.00
1,080,000.00
324,000.00

2
7,000
4,200,000
1,680,000
600,000.00
1,920,000
1,200,000.00
720,000.00
216,000.00

3
7,000
4,200,000
1,680,000
600,000.00
1,920,000
1,200,000.00
720,000.00
216,000.00

EAT
ADD DEPRECIATION
NET CASHFLOW
PVIF
NPV
INITIAL COST
NPV

QSN 2B
IRR
NET CASHFLOW
PVIF
NPV
INITIAL COST
NPV

756,000.00
1,200,000.00
1,956,000.00
0.9091
1,778,199.60

504,000.00
1,200,000.00
1,704,000.00
0.8264
1,408,185.60

504,000.00
1,200,000.00
1,704,000.00
0.7513
1,280,215.20

USING RATE OF 5%
1,956,000.00 1,704,000.00
0.9524
0.907
1,862,894.40 1,545,528.00

1,704,000.00
0.8638
1,471,915.20

ABSOLUTE SUM OF NPV

IRR

5+243657.6/172110*5

32
16
16
8
8
16
24
0.683
16.392

40
16
0.5
24
12
12
16 confirm ka dep is added back
28
0.6209
17.3852
83.1976
80
3.1976 Positive npv accept

COST
DURATION
DEPRECIATION

e sum of npv*diffrence btw the rate

sum of npv= 3.1976+7.1154
24
0.5718
13.7232

28
0.4972
13.9216

14.08
14.08>10

DEPRECIATION

4
5,000
3,000,000
1,200,000
600,000.00
1,200,000
1,200,000.00
0

accept the project

1,200,000.00

5
3,000
1,800,000
720,000
600,000.00
480,000
1,200,000.00
(720,000.00)
0

72.8846
80
-7.1154

1,200,000.00
1,200,000.00
0.683
819,600.00

(720,000.00)
1,200,000.00
480,000.00
0.6209
298,032.00

5,584,232.40
6,000,000.00
(415,767.60)

NEGATIVE NPV THEREFORE REJECT THE PROJECT

1,200,000.00
0.8227
987,240.00

480,000.00
0.7835
376,080.00

6,243,657.60
6,000,000.00
243,657.60

(172,110.00)

12.08% ACCEPT SINCE IT IS GREATER THAN COST OF CAPITAL

80
5
16

-3.9178