Page 33 - AFM Integrated Workbook STUDENT S18-J19
P. 33
Investment appraisal
Solution
$m T 0 T 1 T 2 T 3 T 4
Net op CF 1.060 1.124 1.191 1.262 1.060
($1m ×1.06 p.a.)
TAD (W1) (0.500) (0.375) (0.281) 0.156
Taxable profit 0.560 0.749 0.910 1.418
Tax (20%) (0.112) (0.150) (0.182) (0.284)
Add back TAD 0.500 0.375 0.281 (0.156)
Machine cost and sale (2.000) 1.000
WC (W2) (0.265) (0.016) (0.017) (0.018) 0.316
FCF (2.265) 0.932 0.957 0.991 2.294
DF 12% 1 0.893 0.797 0.712 0.636
PV (2.265) 0.832 0.763 0.706 1.459
NPV = $1.495 million.
The NPV is positive, so the project is financially acceptable.
21
