Question

Suppose you are considering purchasing a $7500 machine that will increase sales by
$2000 per year over a 4-year period. At the end of the 4 year period, the machine will
have a salvage value of 0. The asset will be deperciated to 0 using straight line method. If
the appropriate tax rate of 32%, and a required return of 9%, what is the NPV of the project?

Can you show me in excel thanks

Answer 1

Solution :

The NPV of the project = - $ 1,150.15

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

07.11.2019 - Microsoft Excel ? - XES FILE HOME A B C INSERT FORMULAS DATA REVIEW VIEW PAGE LAYOUT D Ε MN SI.No. Year Particulars | 2 2 1 Cash Inflow Year 1 Cash Inflow Year 2 3 Cash Inflow Year 3 4 Cash Inflow Year 4 Statement showing calculation of Net Present value of the Project Increase in operating income Depreciation Operating Income Tax @ 32% Operating Addback: Cash flow due to increase in sales = 7500/ 4 = 1875 before tax (4) = (3) * 0.32 income after tax Depreciation after Tax (2) (3) = (1) - (2) (5) = (3) - (4) (2) (6) = (5) + (2) $ 2,000.00 $ 1,875.00 $ 125.00$ 40.00 $ 85.00 $ 1,875.00 $ 1,960.00 $ 2,000.00 $ 1,875.00 $ 125.00 $ 40.00 $ 85.00 $ 1,875.00 $ 1,960.00 $ 2,000.00 $ 1,875.00 $ 125.00$ 40.00 $ 85.00 $ 1,875.00 $ 1,960.00 $ 2,000.00 $ 1,875.00 $ 125.00$ 40.00 $ 85.00 $ 1,875.00 $ 1,960.00 Total of discounted cash Inflows - (A) - (1)+(2) + (3) $ 7,500.00 Total of Cash Outflows - (B) Net Present value of the Project = (A) - (B) PV Factor Discounted Cash @9% flows (7) (8) = (6) * (7) 0.9174 $ 1,798.17 1,649.69 0.7722 $ 1,513.48 0.7084 $ 1,388.51 IS 6,349.85 1.0000 $ 7,500.00 7,500.00 -1,150.15 4 O Initial Investment