Capital Budgeting: Calculation of NPV, IRR and Payback Period

Running head: CAPITAL BUDGETING
Capital Budgeting
Name of the Student:
Name of the University:
Authors Note:

1CAPITAL BUDGETING
Table of Contents
Answer to Question 1......................................................................................................................2
Answer to Question 2......................................................................................................................3
Answer to Question 3......................................................................................................................3
Reference.........................................................................................................................................5

2CAPITAL BUDGETING
Answer to Question 1
Units Sales 90000 100000 110000 117000
Units Sales price $360.00 $360.00 $360.00 $360.00
Sales Revenue $32,400,000.00 $36,000,000.00 $39,600,000.00 $42,120,000.00
Less:
Variable cost $20,430,000.00 $22,700,000.00 $24,970,000.00 $26,559,000.00
Contribution $11,970,000.00 $13,300,000.00 $14,630,000.00 $15,561,000.00
Less:
Fixed costs $175,000.00 $175,000.00 $175,000.00 $175,000.00
Net profit $11,795,000.00 $13,125,000.00 $14,455,000.00 $15,386,000.00
Tax Rate @ 40% $4,718,000.00 $5,250,000.00 $5,782,000.00 $6,154,400.00
Profit after tax $7,077,000.00 $7,875,000.00 $8,673,000.00 $9,231,600.00
Net opearting capital Investment $1,260,000.00 $1,260,000.00 $882,000.00
Receipt of Non taxble cash grant $500,000.00
Sale of scrap
Net Cash flow $6,317,000.00 $6,615,000.00 $7,791,000.00 $9,231,600.00
Discounting Factor 0.80000 0.64000 0.51200 0.40960
Discounted Cash flow $5,053,600.00 $4,233,600.00 $3,988,992.00 $3,781,263.36
Present Value of Cashflow $22,327,205.12
Statement showing Calculation of PV of Capital Cost Allowance
Particulars Amount
Investment cost $13,200,000.00
Rate of Income tax 40%
Rate of capital cost allowance 20%
Rate of return 25%
PV of CCA $3,300,000.00