Assuming a agricultural water project that has an initial investment of 1 billion RMB and a time frame of5 years, with a predicted 0.8 billion RMB/year revenue and operation fee 0.45 billion RMB plus 25% ofenterprise income tax. If to adopt the straight-line depreciation method, the weighted mean capital costis 10%. According to the corresponding equations mentioned above, the project can get its investmentNPV, EVA and accumulative economic value added (MVA) (Table 1).Table 1: NPV and EVA investment decision analysis of agricultural water project (unit: 10 thousand RMB)Time (year)100000Initial investmentOperation incomeOperation costDepreciation80000800008000080000800004500045000450004500045000200002000020000200002000037501125037501125031250Income taxation3750375037501125031250NOPAT1125011250After-tax cash flow312503125031250NPV18462Capital costEVA100001000010000100001000012501250125012501250MVA18462Present its feasibility using1. Rate or Return Method2. Annual Worth Method3. Present Worth Method4. Future Worth Method5. Payback MethodAll method should be presented with the cash flow diagram

Given Cash flow after taxYear=5 years

Assuming a agricultural water project that has an initial investment of 1 billion RMB and a time frame of 5 years, with a predicted 0.8 billion RMB/year revenue and operation fee 0.45 billion RMB plus 25% of enterprise income tax. If to adopt the straight-line depreciation method, the weighted mean capital cost is 10%. According to the corresponding equations mentioned above, the project can get its investment NPV, EVA and accumulative economic value added (MVA) (Table 1). Table 1: NPV and EVA investment decision analysis of agricultural water project (unit: 10 thousand RMB) Time (year)

Assuming a agricultural water project that has an initial investment of 1 billion RMB and a time frame of 5 years, with a predicted 0.8 billion RMB/year revenue and operation fee 0.45 billion RMB plus 25% of enterprise income tax. If to adopt the straight-line depreciation method, the weighted mean capital cost is 10%. According to the corresponding equations mentioned above, the project can get its investment NPV, EVA and accumulative economic value added (MVA) (Table 1). Table 1: NPV and EVA investment decision analysis of agricultural water project (unit: 10 thousand RMB) Time (year)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Assuming a agricultural water project that has an initial investment of 1 billion RMB and a time frame of
5 years, with a predicted 0.8 billion RMB/year revenue and operation fee 0.45 billion RMB plus 25% of
enterprise income tax. If to adopt the straight-line depreciation method, the weighted mean capital cost
is 10%. According to the corresponding equations mentioned above, the project can get its investment
NPV, EVA and accumulative economic value added (MVA) (Table 1).
Table 1: NPV and EVA investment decision analysis of agricultural water project (unit: 10 thousand RMB)
Time (year)
100000
Initial investment
Operation income
Operation cost
Depreciation
80000
80000
80000
80000
80000
45000
45000
45000
45000
45000
20000
20000
20000
20000
20000
3750
11250
3750
11250
31250
Income taxation
3750
3750
3750
11250
31250
NOPAT
11250
11250
After-tax cash flow
31250
31250
31250
NPV
18462
Capital cost
EVA
10000
10000
10000
10000
10000
1250
1250
1250
1250
1250
MVA
18462
Present its feasibility using
1. Rate or Return Method
2. Annual Worth Method
3. Present Worth Method
4. Future Worth Method
5. Payback Method
All method should be presented with the cash flow diagram

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