Can anyone shed some light on this NPV question? An analyst gathered the following data about a project: Costs are $8000 plus $2000 in shipping and installation For the next five years the project will annually generate $5000.00 in sales and $2000 in costs, not including depreciation. The project is being depreciated on a straight line basis over five years with no salvage value. The company’s tax rare is 40% and the WACC is 10%. The projects NPV is closest to: A.) -$144 B.) $144 C.) $279 D.) $1244
Y 0 1 2 3 4 5 Investment-10000 NCF 3000 3000 3000 3000 3000 Depreciation 2000 2000 2000 2000 2000 Profit 1000 1000 1000 1000 1000 Tax 400 400 400 400 400 Profit after tax 600 600 600 600 600 Depreciation 2000 2000 2000 2000 2000 NCF -10000 2600 2600 2600 2600 2600 PV of CF 9,856.05 investment (10,000.00) NPV ($143.95)
sorry copying the excel sheet didnt work. Anyways, its like this. 1. Calculate profit, 2. Calculate Tax 3. Deduct tax from profit to get profit after tax 4. add back depreciation to profit after tax to find net cash flows 5. discount net cash flows
I thought tax implications were ignored for NPV calcuations, no?
I think cash flows are analyzed on an after-tax.
NPV is calculated on after tax basis…so chelseace is correct in his calcuation