Why is the initial cashflow 9,460 added from tax and depreciation but not taking into account Total Savings, why is it not 12,504.29 instead?

 

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1. Calculation of net present value (NPV): Initial investment Cost of purchase of new machine + Change in net working capital salvage ovalue of old asset- -tax = 70,000+ 4,500-5,000-((8,000-5,000) × 30%) = $68,600 Particulars 0 -68,600.00 1.00 Year 3 4 0.91 5 Savings Less: Depreciation Total savings Less: Tax (30%) Add: Depreciation Cashflows Initial investment Recovery of working capital 4,500.00 16,000.00 -68,600.0,460.00 9,460.00 9,460.00 9,460.00 9,460.00 9,460.00 29,960.0 Salvage value Net cahflows Discounting factor (10%) 0.83 0.75 0.68 0.62 0.56 0.51 Discounted cashflows -68,600.03,600.00 7,818.18 7,107.44 6,461.31 5,873.92 5,339.92 15,374.22 Net present value = Present value of cash inflows Initial investment 6 7 14,000.00 14,000.00 14,000.00 14,000.00 14,000.00 14,000.00 14,000.00 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 6,485.71 6,485.71 6,485.71 6,485.71 6,485.71 6,485.71 6,485.71 1,945.71 1,945.71 1,945.71 1,945.71 1,945.71 1,945.71 1,945.71 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 9,460.00 9,460.00 9,460.00 9,460.00 9,460.00 9,460.00 9,460.00 (8,600 + 7,818.18+7,107.44 +6,461.31+5,837.92 +5,339.92 +15,374.22) -68,600 -$-12,061.01 1. Calculation of net present value (NPV): Initial investment Cost of purchase of new machine + Change in net working capital salvage ovalue of old asset- -tax = 70,000+ 4,500-5,000-((8,000-5,000) × 30%) = $68,600 Particulars 0 -68,600.00 1.00 Year 3 4 0.91 5 Savings Less: Depreciation Total savings Less: Tax (30%) Add: Depreciation Cashflows Initial investment Recovery of working capital 4,500.00 16,000.00 -68,600.0,460.00 9,460.00 9,460.00 9,460.00 9,460.00 9,460.00 29,960.0 Salvage value Net cahflows Discounting factor (10%) 0.83 0.75 0.68 0.62 0.56 0.51 Discounted cashflows -68,600.03,600.00 7,818.18 7,107.44 6,461.31 5,873.92 5,339.92 15,374.22 Net present value = Present value of cash inflows Initial investment 6 7 14,000.00 14,000.00 14,000.00 14,000.00 14,000.00 14,000.00 14,000.00 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 6,485.71 6,485.71 6,485.71 6,485.71 6,485.71 6,485.71 6,485.71 1,945.71 1,945.71 1,945.71 1,945.71 1,945.71 1,945.71 1,945.71 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 7,514.29 9,460.00 9,460.00 9,460.00 9,460.00 9,460.00 9,460.00 9,460.00 (8,600 + 7,818.18+7,107.44 +6,461.31+5,837.92 +5,339.92 +15,374.22) -68,600 -$-12,061.01

Answer rating: 100% (QA)

The initial cash flow of 9460 is the sum of the tax savings of 194571 and ... View the full answer