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212,500
40%
$
$
60,000
36,000 (=(1-40%)*60,000)
Computation 2.1
WACC =
Year
0
1
2
3
4
5
6
7
8
11%
Net Cash Flow
$
(212,500)
$
53,000
$
63,200
$
52,150
$
46,200
$
45,350
$
41,100
$
36,000
$
36,000
PVF
1
0.900900901
0.811622433
0.731191381
0.658730974
0.593451328
0.534640836
0.481658411
0.433926496
NPV =
PV
$ (212,500)
$ 47,748
$ 51,295
$ 38,132
$ 30,433
$ 26,913
$ 21,974
$ 17,340
$ 15,621
$ 36,955
Cumulative CF
$
(212,500)
$
(159,500)
$
(96,300)
$
(44,150)
$
2,050
$
47,400
$
88,500
$
124,500
$
160,500
$
$
3
44,150
46,200
3.96
$
$
5
17,979
21,794
5.82
$
$
$
$
$
$
$
$
$
PV of CFs
(212,500)
47,748
51,295
38,132
30,433
26,913
21,974
17,340
15,621
Cum PV of CFs
$
(212,500)
$
(164,752)
$
(113,457)
$
(75,325)
$
(44,892)
$
(17,979)
$
3,995
$
21,335
$
36,956
25%
17%
Computations 5.1
WACC =
11%
OUTFLOWS/COSTS
Year
Net Cash Flow
0 $
(212,500)
PVF
1.00 $
INFLOWS
Year
Net Cash Flow
1 $
53,000
2 $
63,200
3 $
52,150
4 $
46,200
5 $
45,350
6 $
41,100
7 $
36,000
8 $
36,000
FVF
2.08
1.87
1.69
1.52
1.37
1.23
1.11
1.00
$
$
$
$
$
$
$
$
$
PV
(212,500)
FV
110,036
118,210
87,876
70,135
62,022
50,639
39,960
36,000
574,879 (=terminal value)
Table 6.1
Year
0
1
2
3
4
5
6
7
8
Cash Inflows
$
$
$
$
$
$
$
$
53,000
63,200
52,150
46,200
45,350
41,100
36,000
36,000
PVF
1.0000
0.9009
0.8116
0.7312
0.6587
0.5935
0.5346
0.4817
0.4339
PV of cash inflows
PV
$
$
$
$
$
$
$
$
$
47,748
51,295
38,132
30,433
26,913
21,974
17,340
15,621
$249,455
Computation 6.1
PI = NPV of Cash Inflows/NPV of Cash Outflows
= 249,455 / 212,500
= 1.17
Computation 8.1
ITC savings = Cost of asset * ITC rate
= $212,500 * 10%
= $21,500
Computation 8.2
New Depreciable Cost= 212500*(1-0.1)
= $
191,250
Table 8.1
Tax Savings Based on New Depreciable Cost
Year
Dep rate
Dep Expense
Tax Savings
0
1
2
3
4
5
6
0.20
0.32
0.19
0.12
0.11
0.06
1.00
$
$
$
$
$
$
$
38,250
61,200
36,338
22,950
21,038
11,475
191,250
$
$
$
$
$
$
$
15,300
24,480
14,535
9,180
8,415
4,590
76,500
Table 8.2
NPV Based on New Depreciable Cost
After-tax
Savings
_________
0
1
2
3
4
5
6
7
8
$
$
$
$
$
$
$
$
36,000
36,000
36,000
36,000
36,000
36,000
36,000
36,000
Depreciation
Tax Savings
____________
$
$
$
$
$
$
$
$
15,300
24,480
14,535
9,180
8,415
4,590
-
Operating
Cash Flow
_________
$
51,300
$
60,480
$
50,535
$
45,180
$
44,415
$
40,590
$
36,000
$
36,000
NPVnew =
NPVold =
PV at t=0
$ (191,250)
$
46,216
$
49,087
$
36,951
$
29,761
$
26,358
$
21,701
$
17,340
$
15,621
$
51,786
$ (36,955)
$
14,831
140000
120000
100000
80000
60000
40000
20000
0
0
10
-20000
-40000
Cost of Capital
12
14
16
18
20
Table 10.1
NPV of Short-term Project
rate
11.00%
Table 10.2
IRR of Short-term Project
IRR
Year
Net CF
0 $ (120,000)
1 $ 150,000
NPV
Year
PV at t=0
$
(120,000)
$
135,135
$
15,135
Table 10.3
NPV of short-term and default project with varying rates
rate
short-term
default
0%
30,000.00
$160,500.00
1%
28,514.85
$145,633.80
2%
27,058.82
$131,666.76
3%
25,631.07
$118,531.05
4%
24,230.77
$106,164.81
5%
22,857.14
$94,511.55
6%
21,509.43
$83,519.59
7%
20,186.92
$73,141.64
8%
18,888.89
$63,334.37
9%
17,614.68
$54,058.04
10%
16,363.64
$45,276.13
11%
15,135.14
$36,955.10
12%
13,928.57
$29,064.07
13%
12,743.36
$21,574.61
14%
11,578.95
$14,460.49
15%
10,434.78
$7,697.53
16%
9,310.34
$1,263.38
17%
8,205.13
($4,862.64)
18%
7,118.64
19%
6,050.42
20%
5,000.00
21%
3,966.94
22%
2,950.82
23%
1,951.22
24%
967.74
25%
Computation 10.1
Crossover pt short-term
default
14.506%
10,997.81
$10,997.81
Net CF
0 $ (120,000)
1 $ 150,000
NPV
25.00%
PV at t=0
$ (120,000)
$ 120,000
$
0
160,000.00
140,000.00
120,000.00
100,000.00
short-term
80,000.00
default
60,000.00
40,000.00
20,000.00
0%
5%
10%
15%
(20,000.00)
Cost of Capital
20%
25%
30%
Table 1
Project Net Cash Flows
Year
0
1
2
3
4
5
6
7
8
NPV
-55675
-24798
6078
36955
67832
98709
Computations 11.1
Table 1
Project Net Cash Flows
0
1
2
3
4
5
6
7
8
Year
0
1
2
3
4
5
6
7
8
26562.5
15937.5
Net Cost
Dep Tax Savings After-Tax Cost Savings Net Cash Flow
-212500
-212500
17000
15937.5
32937.5
27200
15937.5
43137.5
16150
15937.5
32087.5
10200
15937.5
26137.5
9350
15937.5
25287.5
5100
15937.5
21037.5
0
15937.5
15937.5
0
15937.5
15937.5
0
Table 11.1
Savings
30000
40000
50000
60000
70000
80000
Year
Savings
After Tax Savings
IRR
MIRR
2.00%
7.20%
11.90%
16.20%
20.20%
24.10%
Payback
9.30%
11.40%
13.20%
14.90%
16.40%
Savings
After Tax Savings
0.0543
0.0456
0.0396
0.035
0.0314
PI
0.88
1.03
1.17
1.32
1.46
48031.41007
28818.84604
Net Cost
Dep Tax Savings After-Tax Cost Savings Net Cash Flow
-212500
-212500
17000
28818.84604
45818.84604
27200
28818.84604
56018.84604
16150
28818.84604
44968.84604
10200
28818.84604
39018.84604
9350
28818.84604
38168.84604
5100
28818.84604
33918.84604
0
28818.84604
28818.84604
0
28818.84604
28818.84604
Cash Flow
-212500
45818.84604
56018.84604
44968.84604
39018.84604
38168.84604
33918.84604
28818.84604
28818.84604
Table 11.2
Cost of capital NPV
PVF
PV
-212500
41278.23968
45466.15213
32880.83266
25702.92247
22651.35238
18134.40021
13880.83959
12505.26089
0
0.900900901
0.811622433
0.731191381
0.658730974
0.593451328
0.534640836
0.481658411
0.433926496
IRR
MIRR
Payback
PI
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
63334
54058
45276
35955
29064
21575
14460
7698
1263
-4863
-10700
Table 11.3
Tax Rate
NPV
20%
30%
40%
50%
60%
IRR
98709
67832
36955
6078
-24798
Computations 11.2
Table 1
Project Net Cash Flows
Year
16.20%
16.20%
16.20%
16.20%
16.20%
16.20%
16.20%
16.20%
16.20%
16.20%
16.20%
0.116
0.121
0.127
13.20%
13.80%
14.40%
14.90%
15.50%
16.10%
16.70%
17.20%
MIRR
0.197
0.18
0.162
0.143
0.121
Savings
After Tax Savings
Tax Rate
3.96
3.96
3.96
3.96
3.96
3.96
3.96
3.96
3.96
3.96
3.96
1.3
1.25
1.21
1.17
1.14
1.1
1.07
1.04
1.01
0.98
0.95
3.72
3.83
3.96
4.1
4.28
PI
1.31
1.24
1.17
1.1
1.03
Payback
0.148
0.141
0.132
0.124
0.115
60000
28818.84604
0.62
0
1
2
3
4
5
6
7
8
Net Cost
Dep Tax Savings After-Tax Cost Savings Net Cash Flow
-212500
-212500
17000
28818.84604
45818.84604
27200
28818.84604
56018.84604
16150
28818.84604
44968.84604
10200
28818.84604
39018.84604
9350
28818.84604
38168.84604
5100
28818.84604
33918.84604
0
28818.84604
28818.84604
0
28818.84604
28818.84604
0
1
2
3
4
5
6
7
8
Cost of Cap
0.11
Cash Flow
PVF
PV
-212500
45818.84604
0.900900901
56018.84604
0.811622433
44968.84604
0.731191381
39018.84604
0.658730974
38168.84604
0.593451328
33918.84604
0.534640836
28818.84604
0.481658411
28818.84604
0.433926496
Year
-212500
41278.23968
45466.15213
32880.83266
25702.92247
22651.35238
18134.40021
13880.83959
12505.26089
0
Table 12.1
WACC =
Year
11%
MIRR =
0.00%
300.00%
14.32%
15000
10000
5000
0
0
0.5
1.5
2.5
-5000
-10000
Cost of Capital
3.5
4.5