# Capital Budgeting: TNOCF & Effect of Fcinv Increase

CFA text pg 35. In the problem set it asks to calc TNOCF for a replacement project. The formula is given as Sal t - (Sal t - BV t)(tax rate) +NWC. Problem I am running into is how they are arriving at \$150,000.

(sal new 200 - sal old 100) + NWC 80 - Tax 0.30 is how its given. i might be slow but order of operations give me a different answer.

I am running into the same problem on pg 83 question 46. Can someone provide a clear and concise formula. I know this isnt that difficult.

Lastly,pg 83 question 47 the calulation they give when asking about the affect of an increase on NPV when FCInv or outlay is increased: additional tax savings from the additional depreciation ect. Problem again is the math.

Outlay increase -250 + annual deprec 50(0.40 tax)/1+ discount rate = -250 + 72 = -177.9 decrease in NPV. No idea how they are deriving the 72. How do you get that number when you are disounting a lower absolute #?

Thanks

Itâ€™s just (200-100) - 0.3(200-100)+80 = 150

what are you doing or getting? Is you calculator set to AOS?

For question 47 on page 83, the 72 comes from discounting the tax shield of 20 over the 5 years. Additional 50 dep (.40 tax) reduces taxes by 20 per year. This 20 per year needs to be discounted 5 years out, then added to the additional FCInv (-250).

thanks for the clarification. formula was incorrect!

thanks for responsing. i understand how to calc the tax shield. Im just not understanding how you arive at a higher number if you are discounting 20,000/1.12^5yrs this gives me ~17,000.

ignore that im retarted. threw it in the cashflow function in the TAII. All good.

thanks for the help guys.