Page 187 on Schweser Book 2 of Capital Budgeting Sensitivity Analysis Worked Example I tried working through the data given to calculate the given IRR and NPV numbers but failed to do so. Kindly check my working where I am going wrong? Outlay = FCInv + NWVInv = 60,000 + 15,000 = 75,000 After-tax operating cash flow = (S-C)(1-T) + DT = (50-20)*1500*(1-0.4) + (60,000/3)(0.4) = (45,000)(0.6) + (20,000)(0.4) = 35,000 Terminal year Cash flow = Salvage Value + NWCInv - T(Salvage Value - Book Value) = 10,000 + 15,000 - 0.4*(10,000 - 0) = 21,000 So CF0 = -75,000 CF1 = 35,000 CF2 = 35,000 CF3 = 21,000 NPV = -1662.28 IRR = 13.5% Whereas the answer in worked example is a positive NPV and an IRR Greater than 15%.
Shouldn’t the terminal cash flow be added to the after-tax operating cash flow? Either in the third year or the second year. I don’t have notes with me. This is just something I observed from above.
idreesz: The NPV in the book is 11,871 and IRR is 23.5% I tried putting the after-tax operating cash flow in it, the resulting NPV comes up as 21,350
your cash flow numbers are all wrong. CF0=-75 CF1=CF2=32 CF3=32+21=53 Rate=15 NPV=11.871 IRR=23.52