A company is considering an investment proposal to install new milling controls at a cost of Rs. 50,000. The facility has a life expectancy of 5 years and no salvage value. The tax rate is 35%. Assume the firm uses MACRS method of depreciation and the same is allowed for tax purposes. Under MACRS asset falls in 3 years property class for which depreciation rates are 33.33%, 44.45%, 14.81% and 7.41% for years 1- 4 respectively. The estimated cash flows before depreciation and tax(CFBDT) from the investment proposal are Rs. 10,000; Rs. 10,692; Rs. 12,769; Rs. 13462 and Rs. 20,385 from year 1 to 5 respectively. Based on above information: (1) Calculate after tax cash flows for the project, (2) NPV of Project if the Required Rate of Return is 12%. Should this project be accepted?
A company is considering an investment proposal to install new milling controls at a cost of Rs. 50,000. The facility has a life expectancy of 5 years and no salvage value. The tax rate is 35%. Assume the firm uses MACRS method of depreciation and the same is allowed for tax purposes. Under MACRS asset falls in 3 years property class for which depreciation rates are 33.33%, 44.45%, 14.81% and 7.41% for years 1- 4 respectively. The estimated cash flows before depreciation and tax(CFBDT) from the investment proposal are Rs. 10,000; Rs. 10,692; Rs. 12,769; Rs. 13462 and Rs. 20,385 from year 1 to 5 respectively. Based on above information: (1) Calculate after tax cash flows for the project, (2) NPV of Project if the Required Rate of Return is 12%. Should this project be accepted?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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