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You are considering an investment project. The project has a life of three years. Project Information:...

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Finance

You are considering an investment project. The project has alife of three years. Project Information: Initial investment into anew machine, which would cost Rs.4,50,000. Machine is to bedepreciated to zero over three years (straight line depreciation)with no salvage value at the end. Operating revenue is expected tobe Rs. 6,00,000 per year. Operating costs for raw materialsexpected to be Rs.3,00,000 per year. Assume tax rate is 30% and thediscount rate is 20%.

a. Compute after-tax cash flows every year. 300 Words

b. Evaluate the project NPV. Would you accept the project? 300 Words

Answer & Explanation Solved by verified expert
4.5 Ratings (598 Votes)
aAfterTax Cash Flow AfterTax Cash Flow Annual Revenue Costs x 1 Tax Rate Depreciation x Tax Rate 600000 300000 x 1 030 450000 3 Years x 030 300000 x 070 150000 x 030    See Answer
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Transcribed Image Text

You are considering an investment project. The project has alife of three years. Project Information: Initial investment into anew machine, which would cost Rs.4,50,000. Machine is to bedepreciated to zero over three years (straight line depreciation)with no salvage value at the end. Operating revenue is expected tobe Rs. 6,00,000 per year. Operating costs for raw materialsexpected to be Rs.3,00,000 per year. Assume tax rate is 30% and thediscount rate is 20%.a. Compute after-tax cash flows every year. 300 Wordsb. Evaluate the project NPV. Would you accept the project? 300 Words

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