The investment cost of the project to launch a new production line is 200 million rubles; the revenue from the sale of new products manufactured using this line is 80 million rubles a year (before taxes and without depreciation of the equipment). The equipment is fully amortized over five years, after which the project is closed. The income tax rate is 30%.
Calculate the NPV and payback period of the project (simple and discounted) if the discount rate is 12%.

An investment alternative in an engineering project requires a capital cost (to purchase and install equipment) of $100 million completed at time zero. The equipment has no salvage value after it is installed. The investment will produce a stream of revenue of $48 million per year-end over a 7-year period with operating costs of $20 million per year-end. Use declining-balance depreciation for the capital cost over the project lifespan with d=20%, until the final year when you can fully depreciate the balance. The rate of taxation on the income is 38%, the inflation rate is given as 4% (applied to both revenue & cost), and the cost of capital, to be used for discounting purposes, is 8%.

i) Construct the cash flow table, calculate the after-tax annual cash flows, and determine the undiscounted payback period;

ii) Calculate the present worth, PW, for this project, based on the after tax annual cashflows.

iii) Using linear interpolation calculate the internal rate of return for this project, based on the after tax annual cashflows.

TIP: For iii), use linear interpolation to determine the interest rate that make PW=0

You have been asked to render an opinion to your boss as to whether your employer should enter into the short-term capital project described below.

The project requires the purchase of a new piece of equipment for a price of $25,000. The firm has paid a consultant $1,000 to estimate the revenues expected from the project. The firm that ships the equipment and installs it in our plant will charge $500.

The project’s incremental operating cashflows before taxes will be $12,000 per year for three years. At the end of three years the equipment will be sold for $5000. The equipment has a three-year useful life and will be depreciated using the three-year MACRS depreciation schedule. (33.3%, 44.5%, 14.8%, 7.4%) The tax rate is 34% and the firm’s required rate of return is 17%.

a. What is the tax basis for the equipment?

b. What are the depreciation deductions for years 1, 2, and 3?

c. What will be the after tax net cash flow from the sale of the asset at the end of year three?

d. Calculate the total operating cash flow for each of the three years.

e. Calculate the payback period of the project

f. Calculate the net present value of the project

An investment project costs $10,000 and has annual cash flows of $2,950 for six years. What is the discounted payback period if the discount rate is zero percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period years What is the discounted payback period if the discount rate is 4 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period years What is the discounted payback period if the discount rate is 21 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period years