Net Present Value

Hi John, I am in the process of calculating the nominal after-tax NPV of a project in order to comment on the financial acceptability of it. I just wanted to get your thoughts on my calculations.

Key details for the project are as follows:

Sales Volume (1-4): 12,000 – 13,000 – 10,000 – 10,000
Selling Price (1-4): 450 – 475 – 500 – 570
Variable Cost (1-4): 260 – 280 – 295 – 320
Fixed Costs: 750,000 per year

Selling Price inflation: 5%
Variable Cost inflation: 6%
Fixed Cost inflation: 3.5%

End of 4 years, scrap value of machinery sold at £400,000

Tax allowable depreciation on initial investment 25% reducing balance.
Corporation tax 28%, one year in arrears.
Balancing charge/allowance available at end of the 4th year
Nominal after-tax cost of capital 13% per year
Initial investment cost is £5,000,000

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A synopsis of my calculations is:

Contribution 1 – 4 (Sales less VC): 2363 – 2718 – 2275 – 2888
Pre Tax CF 1 – 4 (Contribution less FC): 1587 – 1915 – 1443 – 2028

Post Tax CF 1 – 5 @20%: 1470 – 907 – 1624 – -568

Net CF 1 – 5: -5000 – 250 – 1658 – 1048 – 2366 – -568
NDF @13%1 – 5: 1 – 0.885 – 0.783 – 0.693 – 0.613 – 0.543
PV 1 – 5: -5000 – 221 – 1298 – 726 – 1450 – -308

NPV is -1613. As it is negative, it is advised that the project does not go ahead.

I hope the above is all clear. Obviously I have not included the workings, so as to avoid anymore confusion!

Thanks for your help.