Question

TABLE 1 PRESENT VALUE OF $1 10% 4% 6% 7% 8% 9% 12% 14% 16% 20% 0.961538 0.952381 0.943396 0.934579 0.925926 0.917431 0.909091 0.892857 0.877193 0.862069 0.833333 0.924556 0.907029 0.889996 0.873439 0.857339 0.841680 0.826446 0.797194 0.769468 0.743163 0.694444 0.888996 0.863838 0.839619 0.816298 0.793832 0.772183 0.751315 0.711780 0.674972 0.640658 0.578704 0.854804 0.822702 0.792094 0.762895 0.735030 0.708425 0.683013 0.635518 0.592080 0.552291 0.482253 0.821927 0.790315 0.746215 0.704961 0.666342 0.630170 0.596267 0.564474 0.506631 0.455587 0.410442 0.334898 0.759918 0.710681 0.665057 0.622750 0.583490 0.547034 0.513158 0.452349 0.399637 0.353830 0.279082 0.783526 0.747258 0.712986 0.680583 0.649931 0.620921 0.567427 0.519369 0.476113 0.401878 8 0.730690 0.676839 0.627412 0.582009 0.540269 0.501866 0.466507 0.403883 0.350559 0.305025 0.232568 9. 0.702587 0.644609 0.591898 0.543934 0.500249 0.460428 0.424098 0.360610 0.307508 0.262953 0.193807 10 0.675564 0.613913 0.558395 0.508349 0.463193 0.422411 0.385543 0.321973 0.269744 0.226684 0.161506 11 0.649581 0.584679 0.526788 0.475093 0.428883 0.387533 0.350494 0.287476 0.236617 0.195417 0.134588 12 0.624597 0.556837 0.496969 0.444012 0.397114 0.355535 0.318631 0.256675 0.207559 0.168463 0.112157 13 0.600574 0.530321 0.468839 0.414964 0.367698 0.326179 0.289664 0.229174 0.182069 0.145227 0.093464 14 0.577475 0.505068 0.442301 0.387817 0.340461 0.299246 0.263331 0.204620 0.159710 0.125195 0.077887 15 0.555265 0.481017 0.417265 0.362446 0.315242 0.274538 0.239392 0.182696 0.140096 0.107927 0.064905 16 0.533908 0.458112 0.393646 0.338735 0.291890 0.251870 0.217629 0.163122 0.122892 0.093041 0.054088 17 0.513373 0.436297 0.371364 0.316574 0.270269 0.231073 0.197845 0.145644 0.107800 0.080207 0.045073 18 0.493628 0.415521 0.350344 0.295864 0.250249 0.211994 0.179859 0.130040 0.094561 0.069144 0.037561 19 0.474642 0.395734 0.330513 0.276508 0.231712 0.194490 0.163508 0.116107 0.082948 0.059607 0.031301 20 0.456387 0.376889 0.311805 0.258419 0.214548 0.178431 0.148644 0.103667 0.072762 0.051385 0.026084

Answer 1

a)	PV of cash outflow		=	3,10,000
	Salvage value		=	18000
	No of years		=	4
	Depreciation amount		=	(3,10,000-18000)/4
			=	73000
	PV of cash inflow
			1	2	3	4
	Incremental cash revenue		1,55,000	1,55,000	1,55,000	1,55,000
(-)	Depreciation		73000	73000	73000	73000
	Net cash revenue after dep		82,000	82,000	82,000	82,000
(-)	Tax rate (40%)		32800	32800	32800	32800
	Cash revenue after tax		49,200	49,200	49,200	49,200
(+)	Depreciation		73000	73000	73000	73000
	Net cash revenue		1,22,200	1,22,200	1,22,200	1,22,200
	Salavage value					18,000
	P.V factor		0.9091	0.8264	0.7513	0.683
	Net cash inflow		1,11,092	1,00,986	91,809	95,757
	Total cash inflow		3,99,644
	Net present value		89,644	(3,99,644-3,10,000)
b)	PV of cash outflow		=	3,10,000
	No of years		=	4
	Depreciation amount		=	(3,10,000)/4
			=	77500
			=	25%	(77500/3,10,000)
	Depreciation rate in double declining		=	25*2
				50%
	PV of cash inflow
			1	2	3	4
	Incremental cash revenue		1,55,000	1,55,000	1,55,000	1,55,000
(-)	Depreciation		155000	77500	38750	19375
			(3,10,000*50%)	(3,10,000-1,55,000)*50%	(1,55,000-77500)*50%	(77500-38750)*50%
	Net cash revenue after dep		0	77,500	1,16,250	1,35,625
(-)	Tax rate (40%)		0	31000	46500	54250
	Cash revenue after tax		0	46,500	69,750	81,375
(+)	Depreciation		155000	77500	38750	19375
	Net cash revenue		1,55,000	1,24,000	1,08,500	1,00,750
	Salavage value					18,000
	P.V factor		0.9091	0.8264	0.7513	0.683
	Net cash inflow		1,40,911	1,02,474	81,516	81,106
	Total cash inflow		4,06,006
	Net present value		96,006	(4,06,006-3,10,000)
c)	Payback Period		2 years
	1	1,55,000	1,55,000
	2	1,55,000	3,10,000
	3	1,55,000	4,65,000
	4	1,55,000	6,20,000
	In 2 years 3,10,000 can be recovered
	Unadjsuted rate of return		41%	(126500/310000)
	Average investment		122000+122000+122000+122000+18000/4	126500
d)	Payback period		2 years
	1	1,55,000	1,55,000
	2	1,55,000	3,10,000
	3	1,55,000	4,65,000
	4	1,55,000	6,20,000
	Unadjsuted rate of return		41%	(126562/310000)
	Average investment		155000+124000+108500+118750/4	126562.5