Question #224263
A business is evaluating a project for which the following information is relevant:
Sales will be K100,000 in the first year and are expected to increase by 5% per year.
Costs will be K50,000 and are expected to increase by 7% per year.
Capital investment will be K200,000 and attracts tax allowable depreciation of the full value of the investment over the 5 year length of the project.
The tax rate is 30%.
The business uses a real discount rate of 9%.
Calculate the NPV for the project. (15 marks)
Sales will be K100,000 in the first year and are expected to increase by 5% per year.
Costs will be K50,000 and are expected to increase by 7% per year.
Capital investment will be K200,000 and attracts tax allowable depreciation of the full value of the investment over the 5 year length of the project.
The tax rate is 30%.
The business uses a real discount rate of 9%.
Calculate the NPV for the project. (15 marks)
Expert's answer
NPV=-200 000+6422.02+6775.52+7029.57+7195.65+7284.16=-165 293.08
The project is unprofitable
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Comments
Answer on Question #224263 I think there is an error to solve tax which is 30% of EBT (profit) for each year.And why is it that you are not adding depreciation after solving for Net Income?