1. ## Calculating NPV

The question is:

A company estimates 16,500 units of a new product could be sold annually over the next 8 years at a price of $23,500 each. Variable cost per unit is$19,700 and fixed costs total $31 million per year. Start up costs include 80 million to build production facilities,$4.50 million in land, and $15 million in net working capital. The$80 million facility is made up of a building valued at $12 million and$68 million of equipment. The building and equipment qualify for CCA rates of 4% and 20%, respectively. At the end of the project's life, the facilities (including the land) will be sold for an estimated $19.80 million. Assume the building's portion of this value will be$6.50 million. Start-up would also require initial expenses of $3.10 million, which are tax deductible. The company pays taxes at a 33% rate and uses a 16% discount rate on projects such as this one. 1. What is the cash flow in year 0? ANSWER: -101,577,000 2. What is the annual after-tax cash flow excluding the depreciation tax shield in the middle years of the project's life? (i.e. years 1-7)? ANSWER: 21,239,000 3. What is the after tax cash flow excluding the depreciation tax shield in year 8? ANSWER:$56,039,000
4. What is the PV of the CCA tax shield of the building and of the equipment? ANSWER: PVCCATSB = 606,523.39 PVCCATSE = 11,114,788.81
5. What is the NPV,ANSWER: 13,012,725.12
MY WORKINGS

1. $\displaystyle -80,000,000 - 4,500,000 - 15,000,000 - 31,00,000(1-.33) = -101,577,000$

2. $\displaystyle [((-19,700*16,500)- 31,000,000)+(16,500*23,500](1-.33) = 21,239,000$

3. $\displaystyle [19,800,000(salvage value) + 15,000,000(NWC)](1-.33) = 23,316,000$ I can't figure out how to get this value.

4. $\displaystyle PVCCATSB = [(12000000(.33)(.04))/(.04+.16)]*[(1+.05(.04))/(1+.04)] - [(6500000(.04)(.33))/(.04+.16)]*[(1)/(1.16)^8]$

I can't figure this part out either.

Any help is appreciated.

2. ## Re: Calculating NPV

Also, I apologize for the weird text in the question.. I do not know why some words are messed up.

3. ## Re: Calculating NPV

Originally Posted by ForeverConfused
Also, I apologize for the weird text in the question. I do not know why some words are messed up.
Look at the first of your quotes: Much much messy text.
Originally Posted by ForeverConfused
The question is: A company estimates 16,500 units of a new product could be sold annually over the next 8 years at a price of $23,500 each. Variable cost per unit is$19,700 and fixed costs total $31 million per year. Start up costs include 80 million to build production facilities,$4.50 million in land, and $15 million in net working capital. The$80 million facility is made up of a building valued at $12 million and$68 million of equipment. The building and equipment qualify for CCA rates of 4% and 20%, respectively. At the end of the project's life, the facilities (including the land) will be sold for an estimated $19.80 million. Assume the building's portion of this value will be$6.50 million. Start-up would also require initial expenses of $3.10 million, which are tax deductible. The company pays taxes at a 33% rate and uses a 16% discount rate on projects such as this one. Now look at the same quote with no messy text. Originally Posted by ForeverConfused A company estimates 16,500 units of a new product could be sold annually over the next 8 years at a price of \$23,500 each. Variable cost per unit is \$19,700 and fixed costs total \$31 million per year. Start up costs include 80 million to build production facilities, \$4.50 million in land, and \$15 million in net working capital. The \$80 million facility is made up of a building valued at \$12 million and \$68 million of equipment. The building and equipment qualify for CCA rates of 4% and 20%, respectively. At the end of the project's life, the facilities (including the land) will be sold for an estimated \$19.80 million. Assume the building's portion of this value will be \$6.50 million. Start-up would also require initial expenses of \$3.10 million, which are tax deductible. The company pays taxes at a 33% rate and uses a 16% discount rate on projects such as this one
How did is clean it up. Well simply by putting a backslash(\) in front of every dollar sign.
On this site \$are also LaTeX tags. It was not designed for dealing in dollars So without backslash$100 for your dreams$looks funny. With a backslash \$100 for your dreams does not looks funny.
That is a minor inconvenience for you. So use \ $. 4. ## Re: Calculating NPV Originally Posted by Plato Look at the first of your quotes: Much much messy text. Now look at the same quote with no messy text. How did is clean it up. Well simply by putting a backslash(\) in front of every dollar sign. On this site \$ are also LaTeX tags. It was not designed for dealing in dollars

So without backslash $100 for your dreams$ looks funny.
With a backslash \$100 for your dreams does not looks funny. That is a minor inconvenience for you. So use \$.
Ah! thanks. Will keep that in mind for the future