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Guys I have a question on NPV where according to forecast the company has interest of $0.80m for the current year. Half of the interest is for a $25m loan repayable in 5 years time.
Should I include it in the computation in my NPV calculation??
I did some research & found that interest payment should not be inlcuded in NPV but it should be added back to calculate the tax element that need to go in the computation of the NPV.
Well guys I’m at a loss…
My questions r :
(i) How do I treat the interest for the loan plus the repayment at end of 5 years
(ii) half of the interest pertains to the loan so what about the other half, how do u treat it?
(iii) How do I calculate the tax if I have to add the interest back?Thx for comments posted!
HI
what i understand is that every interest on a loan capital has been taken care by the cost capital we are using to discount the investment
so there will be no need for you to consider interest again.
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Ok noted. Thx man.
I have done a forecast income statement based on the info given to calculate the tax payable to be transfered to NPV. Then I have started my NPV with gross profit, added up all incremental income and deducted all incremental expenses. Then i just incorporated the tax expense to get my net after tax cash flow… I hope I am on the right track.
Again thx a lot man for replying to my query! Cheers
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