NEW YORK INSTITUE OF TECHNOLOGY SCHOOL OF MANAGEMENT (Department of Accounting&

Question

NEW YORK INSTITUE OF TECHNOLOGY SCHOOL OF MANAGEMENT (Department of Accounting& Finance Corporate Finance (FINC 201) QUIZ 10 Nov. 29,2012 Prof. Raja Nag Name: Ahmad Naser l06056Maximm time: minutes Given the following information, caleulate the NPV of a proposed project Cost = S4,000; estimated life = 3 years; initial increase in accounts receivable (ie. Net Working Capital)-$1000; estimated salvage value-$1,000; net income before taxes and depreciation -$2,100 per year; method of depreciation straight-line; tax rate = 40 percent; required rate of return-18 percent.

Explanation / Answer

Computation of NPV

Computaion of cash flows per annum Net income before tax and depreciation      2,100.00 (-)depreciation [4000 - 1000]/3    (1,000.00) Income before taxes      1,100.00 (-) Taxes @ 40%       (440.00) Profit after taxes          660.00 (+) Depreciation      1,000.00 Net cash flows      1,660.00

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