ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
Taxes are costs, and, therefore, changes in tax rates can affect consumer prices, project lives, and the value of existing firms. Evaluate the change in
Assumptions: Tax
-
Please verify that the information above yields NPV = 0.
-
If you decide to terminate the project in Year 2, what would be the NPV of the project?
-
Suppose that the government now changes tax depreciation to allow a 100% write-off in Year 1. How does this affect your answers to parts a and b above?
Transcribed Image Text:1. Initial investment
2. Revenues
3. Cash operating costs
4. Tax depreciation
5. Income pretax
6. Tax at 40%
7. Net income
8. After-tax salvage
9. Cash flow (7 +8+4-1)
NPV at 20% = 0
100
-100
100
50
33.33
16.67
6.67
10
+43.33
2
100
50
33.33
16.67
6.67
10
+43.33
3
100
50
33.33
16.67
6.67
10
15
+58.33
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