Ebit

$ 30,000

Taxes (34%)

10,200

Net income

$ 19,800

Operating cash flow is thus $30,000 + 40,000 - 10,200 = $59,800 per year. At 12 percent, the five-year annuity factor is 3.6048, so the base-case NPV is:

Base-case NPV = -$200,000 + 59,800 X 3.6048 = $15,567

Thus, the project looks good so far.

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

IV. Capital Budgeting

11. Project Analysis and Evaluation

© The McGraw-Hill Companies, 2002

CHAPTER 11 Project Analysis and Evaluation

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