Explain how did it get the value of depreciation, income taxation, NOPAT, and after-tax cash flow in the table.

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
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Explain how did it get the value of depreciation, income taxation, NOPAT, and after-tax cash flow in the table.

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)
4
5
Initial investment
100000
80000
Operation income
Operation cost
Depreciation
Income taxation
80000
80000
80000
80000
45000
20000
3750
45000
45000
45000
45000
20000
3750
20000
20000
20000
3750
3750
11250
3750
11250
31250
11250
31250
NOPAT
11250
11250
After-tax cash flow
31250
31250
31250
NPV
18462
Capital cost
EVA
10000
1250
10000
1250
10000
10000
10000
1250
1250
1250
MVA
18462
Transcribed Image Text: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) 4 5 Initial investment 100000 80000 Operation income Operation cost Depreciation Income taxation 80000 80000 80000 80000 45000 20000 3750 45000 45000 45000 45000 20000 3750 20000 20000 20000 3750 3750 11250 3750 11250 31250 11250 31250 NOPAT 11250 11250 After-tax cash flow 31250 31250 31250 NPV 18462 Capital cost EVA 10000 1250 10000 1250 10000 10000 10000 1250 1250 1250 MVA 18462
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