Question

Spectacular Flooring is a wood flooring wholesale company is considering building a new inventory warehouse for 500.000. The warehou would lost to increase their pre-tax cash fows by $100.000 each year, the company would panto the warehouse for 10 years before sengit for 200.000. The company uses the depreciation. Ps tax rate is 20 and the rate of return is 1 What is the Net Present Value NPV) of the proposed Investment? 172103

Answer 1

Net Present Value = Present value of cash inflows - Present value of cash outflows Cash inflows from Year 1-10(per year) Pre-tax inflow per year = $1,00,000.00 Less : Depreciation(500000/10)= $ 50,000.00 Profit before tax $ 50,000.00 Less: Tax at 20% (50000* 20%) $ 10,000.00 Profit after tax $ 40,000.00 Add: Depreciation $ 50,000.00 Cash inflow after tax per year $ 90,000.00 After year 10, Sale proceeds from warehouse = $ 200000 4 Year 1 2 3 5 6 7 8 9 10 Cash inflow $ 90,000.00 $ 90,000.00 $ 90,000.00 $90,000.00 $90,000.00 $90,000.00 $90,000.00 $90,000.00 $90,000.00 $ 90,000.00 Sale proceeds 0 0 0 0 0 0 0 0 0 200000 Total inflow $90,000.00 $ 90,000.00 $ 90,000.00 $90,000.00 $90,000.00 $90,000.00 $90,000.00 $90,000.00 $90,000.00 $ 2,90,000.00 PV factor at 10% (1/(1.14Year)) 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855 Present value of inflow(Inflow*PV factor) $81,818.18 $ 74,380.17 $ 67,618.33 $ 61,471.21 $ 55,882.92 $50,802.65 $46,184.23 $41,985.66 $38,168.79 $1,11,807.55 Sum of the present values of inflows= $6,30,119.70 Present value of cash outflow= $5,00,000.00 NPV = 630119.7 - 500000 = $1,30,119.70