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I have gone through the examiners answers for NPV but just can’t seem to get it.
I understand the free cash flows by taking PBT reducing that figure with 30% tax and adding back depreciation.
However he then has the following :-
NPV:
Consider the business as a three-year project to date based on an initial investment of $600,000
2010 2011 2012
PV as at 2012 at 12·5% 179,516 292,169 303,626 gives a total of $775,310
PV of initial investment at 2012 600,000 x (1 + 12·5%)^3 = $854,297
Hence NPV at 2012 = $–78,987Can you please explain the above. Not sure how he’s got the $775,310.
Thanks
Thanks gromit. Tough calculation I think, I hope it doesn’t show up this Dec sitting!
Hello, I am not creating a new post as my Q relates to this scenario
I don’t understand the notion “tax on operating cash flow”. Please, refer to Workings of the answer to Q1. Why are they subtracting 9,360 as tax but not 540 as calculated as tax?
What I did was PAT+ depreciation = free cash flows,
i.e. 1,260+120,000= 121,260And per examiner: 31200-9360+120000=141280. I don’t get this. What about interest? Per scenario, only the principal is payable in 10years. And I assumed interest are payable every year.
Please, explain.
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