Finance: Net Present Value Analysis and Cash Flow from Operations

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Author’s Note:

1FINANCE
Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................3
References..................................................................................................................................6

2FINANCE
Question 1
1) The depreciation for the project was calculated for the equipment by using the straight line
depreciation method where the equipment initial value was divided using the straight line
method. The depreciation value was around 55,333 (200,000-34,000/3).
2) The after tax salvage value of the equipment was considered after taking the tax rate of
34% and the same has been taken into consideration. The salvage value is 34,000 and after
tax salvage value is 22,440 (34000*(1-0.34)).
3) The net change in the working capital is around zero as the initial invested working capital
is expected to be recovered in the third year of the project. Initial investment of 50,000 will
not be recovered in the form of recovery of working capital as 50,000 (Alleyne, Armstrong
and Chandler 2018).
4) The Time Zero- Cash Flow from Assets is around 250,000, which will be in the form of
purchase of equipment (200,000) and working capital investment (50,000).
5) The estimated operating cash flow that the project must generate to make NPV to zero is:
6) a) The NPV of project is -$628,460
b) IRR of Project will be the required rate of return from the project that is 15%.
c) Profitability Index is 1 as the cash inflow is equal to the cash outflow for the
company.
d) Financial Breakeven for the company can be well done with the help of operations
of the company where the company will be producing two next parks for a year, which will
be a financial breakeven position for the company.