I am getting: CF0= -185 CF1=66 CF2=69.6 CF3=75 CF4=82.2 CF5=91.2 + 35 = 126.2 NPV = 123.37 Where am I going wrong??? Please help here, very frustrated. I’m clearly missing something here.
Do you see their answer? Don’t do the whole cash flows just take the difference in depreciations*tax rate 40% and then discount all those back to get NPV
you are ask to calcule the difference between in NPV of the project using straight dep and the projet using DDB. Is like compare 2 projects, so CF are CF of project 1 - CF of project 2 for each year. CF 0 and CF 5 match each other to zero. So you’re left with the difference in depreciation amount.
Yes, I saw the answer, and I get that you can get to it from depreciation alone. Would someone please do the CF from project 1 and see what they get for CFs and NPV. They claim you can get to the answer doing it the long way…(ie: finding NPV for project 1 and subtracting it from the NPV that is given below. While I understand that is not the underlying concern of the problem, would really like to know how it’s possible for me to be 15k off in NPV from a simple CF problem…which is a much bigger concern then the problem at hand. As…if I can’t value projects…I’m in rough shape. Thanks, Lance
I couldnt get the NPV accurate for this to save my life as well…I got what you got , 123.7
I also got an NPV for S/L depr of $123,370. Seems like there’s a piece of information missing about how they calculated the accelerated depreciation NPV of $146,445. With the information provided, I calculated an accelerated depreciation NPV of $127,818, which is an increase of $4,445, corresponding to the correct answer. I wonder if the CFAI forgot to include a terminal sale value for the fixed assets of $50,000 [pre-tax], because that would explain how they got an NPV of $146,445. Even though the question states that the fixed assets will be fully depreciated, they could still sell the assets for whatever price the market is willing to pay for them.
Just wasted 45 min on this as well. Thought I forgot how to do a simple NPV problem and was going crazy
At the end of the project (at T), the difference between Sale price and Book value based on the DDB should be check.
I went crazy on this as well. Got all of the same calculations that you guys got. So are we simply assuming that the $146,445 CFAI number is a mistake?
the moral of the story is, if you see that type of question on the exam, just do the npv of the depreciation differences (+ values early, - values late) and then multiply that by the tax rate.
I get that part. Like the poster above, I just want to make sure that I’m doing the NPV calc correctly, or else I’ve got much bigger problems.
yeah, that’s fair.