AMIS 525

Investment Decision with Income Taxes and Time Value

A company invests in a depreciable asset with a five year life and cost
of $500. Salvage value is expected to be $30.
The annual net operating inflow is expected to be $180.
At time point 3, a repair will cost $10. Working capital is estimated at $60.
The tax rate [tr] is 35% and the time value of money rate [ir] is 8%.
What is the NPV and IRR of this project?

tax factor >>

t
0
0
1
2
3
4
5

[1 - tr]

[1 - tr]

tr

regular flow

irregular flow

irregular flow

depreciation

$180
$180
$180
$180
$180

($10)

tr

35.00%

$30

$60

($500.00)
($60.00)
$94
$94
$94
$94
$94

TVF

irr =

1/9/2014

At

($560.00)
$149.90
$149.90
$143.40
$149.90
$229.40
$262.50
13.40445%

1 / ((1 + ir ) ^ t)

1.00000
0.92593
0.85734
0.79383
0.73503
0.68058
NPV
ir

100.00% 35.00%

($560.0000)
$138.7963
$128.5151
$113.8355
$110.1810
$156.1258
$87.4537
8.000%

total

< ======= after tax amounts ======== >

($500)
($60)

exact irr calculation

t
0
1
2
3
4
5
Sum

65.00% 65.00%

$117.00
$117.00
$117.00 ($6.50)
$117.00
$117.00 $19.50

$60.00

$32.90
$32.90
$32.90
$32.90
$32.90

($500.00)
($60.00)
$149.90
$149.90
$143.40
$149.90
$229.40