[Elnur]

it’s not so important, try to have fresh mind on that day.

[Elnur]

Calculate second NPV using a different rate
If first NPV is positive, use second rate
greater than first rate
If first NPV is negative, use second rate
less than first rate

[Elnur]

2. Let’s suppose that the period of project is 5 years and calculate NPV

Yr Cash Frow DF,10% PV
0 Investment (25000) 1 (25000)
1-5 Cash inflow (8000) 3.791 30328

NPV=5328

Sensitivity change in cash flow= NPV/PV of variable( cash fow) = 5328/30328 =0.176 or 18%

[Elnur]

Thank you very much John

[Elnur]

Hi, I think if these fixed costs are incremental to the project they should include during NPV calculation, but if this is fixed costs not relate to the project but overall fixed costs of the company they excluded from NPV calculation.
You can find this type of question on 1 question of June 2013 sesssion.

[Elnur]

1. From the other reply of the moderator: “Tax is not relevant when calculating the market value – it is irrelevant for investors. It is only relevant when calculating the cost to the company, because they get tax relief on the interest.)”

[Elnur]

1. For example if the cost of debt is 7% before tax and 5.6% after tax, and the rate of tax is 20%, the market
value of irredeemable debt with a coupon rate of 6% will be:
P = 6/0.07 = 85.71 or
P = 6(1 – 0.20)/0.056 = 85.71
Both formulae produce the same valuation

2. What is the period ? How to calculate NPV?

[Author]

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