Cash ouflow 200000

Cash inflows 70000

Pay back period 2.86 years 200000/70000

 Year Cash flow Cumulative Cash flow
500000 0 -500000 -500000
190000 1 190000 -310000 500000-190000
170000 2 170000 -140000 310000-170000
140000 3 160000 20000
4 120000

pay back period=2 YEARS+140000/160000

2.875 years

2 years 10.5 months

 in the tird year

160000 12M 1 year

140000 10.5 0.875

00000-190000 2 years 10.5 months

10000-170000

2 years + 140000/160000

2.875 years

1 year 12 months
0.875 year?
10.5 months
Project Cost 400,000 Initial Investment

Depreciation 80000 400000/5

Year EBDIT Depreciation EBT

1 100000 80000 20000
2 120000 80000 40000
3 140000 80000 60000
4 160000 80000 80000
5 200000 80000 120000

Average annual profits 44800

Average investment 200000

ARR 22.4
 TAX@30% EAT(PAT)
6000 14000
12000 28000
18000 42000
24000 56000
36000 84000
Total 224000

224000/5

(400000+0)/2

44800*100/200000
Cash flows
Projects C0 C1 C2 C3
A -1000 600 200 200
B -1000 200 200 600
C -300 100 100 100
D -300 0 0 300
 PB
C4
1000 3
1000 3
1600 3
1600 3
Depreciation 2500 10000/4

Year EBDIT Depreciation EBT TAX@35%

1 3000 2500 500 175
2 3000 2500 500 175
3 4000 2500 1500 525
4 4000 2500 1500 525

Total 4000 Total

Average annual profit 1000 Average annual profit

Average investment 5000 Average investment

ARR(before tax) 20.00 ARR(After tax)

1000/5000*100%

20%

20
EAT(PAT)
325 500-175
325
975 sanyam check
975 arnav confirm
anmol check
2600

650 2600/4

5000

13.00 650/5000*100%
Year 1 2 3
Net Profit 4000 3000 2000

Average Annual Accounting Profit 3000

Initial Investment 12000

Average Investment 12000+0/2 6000

ARR 3000/6000*100%

50%
Year 1 2 3
Revenue 16000 14000 12000
Exp 9000 8000 7000
Depreciation 3000 3000 3000 9000/3
Net profit 4000 3000 2000

Average Annual Profit 3000 9000/3

 Average Investment 4500
0/6000*100%
ARR 66.67%
Total Sales
Less:COGS

Less:Depreciation
Profit before Tax
Tax @ 30%
Profit after Tax
Add:Depreciation
Cash flow

A depreciation tax shield is a tax reduction technique under w

is subtracted from taxable income.
The amount by which depreciation shields the taxpayer from

There is tax shield of Rs1.5-Rs.1.05=0.45 if depreciation is con

 No Depreciation is charged Depreciation is charged
30 30
25 25
5 5
0 1.5
5 3.5
1.5 1.05
3.5 2.45
0 1.5 since it is non-cash expenditure
3.5 3.95 inflow

tax shield is a tax reduction technique under which depreciation expense

om taxable income.
which depreciation shields the taxpayer from income taxes is referred to as depreciation tax shield

eld of Rs1.5-Rs.1.05=0.45 if depreciation is considered.

xpenditure
Years 1 2 3
EBDIT 45000 30000 25000
Less:Depreciation 25000 25000 25000
Earnings before Tax 20000 5000 0
Less:Tax @ 20% 4000 1000 0
EAT 16000 4000 0
Add:depreciation 25000 25000 25000
Cash inflow 41000 29000 25000

CASH OUTFLOW 100000

CASH INFLOW 128000

 4
35000
25000 100000/4
10000
2000
8000
25000
33000
 Investment 100000

Year Cash flows

1/(1+r)^n n 1 1 55000
r 10% 2 80000
3 15000
1/(1+10%)^1
1/(1+10%)^2
1/(1+10%)^3
NPV PV of cash inflows-PV of cash outf

127385.42-100000

NPV 27385.42

Since NPV is positive and above zero the proposal can b

 Cash Outflow

PVIF @ 10% PV(Cash flows X PVIF)

0.909090909 50000.00
0.826446281 66115.70
0.751314801 11269.72
Total 127385.42 PV of cash inflows

of cash inflows-PV of cash outflow

7385.42-100000

d above zero the proposal can be accepted

Investment/Capital Cos 360000

Depreciation 72000

Net operating Income

(before tax after
Year depreciation)
1 68000
2 68000
3 68000
4 68000
5 68000

NPV

NPV @ 14%

Net operating Income

(before tax after
Year depreciation)
1 68000
2 68000
3 68000
4 68000
5 68000

NPV @ 15%

Net operating Income

(before tax after
Year depreciation)
1 68000
2 68000
3 68000
4 68000
5 68000

NPV @ 16%
360000/5

Cash
Less:Tax @ 45% PAT Add:Depreciation inflow(PAT+Depreciation)
30600 37400 72000 109400
30600 37400 72000 109400
30600 37400 72000 109400
30600 37400 72000 109400
30600 37400 72000 109400

PV of cash inflow-PV of cash outflow

375579.05-360000

15579.05

Cash
Less:Tax @ 45% PAT Add:Depreciation inflow(PAT+Depreciation)
30600 37400 72000 109400
30600 37400 72000 109400
30600 37400 72000 109400
30600 37400 72000 109400
30600 37400 72000 109400

6725.77

Cash
Less:Tax @ 45% PAT Add:Depreciation inflow(PAT+Depreciation)
30600 37400 72000 109400
30600 37400 72000 109400
30600 37400 72000 109400
30600 37400 72000 109400
30600 37400 72000 109400

-1792.27
 PV of cash inflow (Cash
PVIF @14% inflow X PVIF)
1/(1+14%)^1 0.87719298245614 95964.9122807018
1/(1+14%)^2 0.769467528470298 84179.7476146506
1/(1+14%)^3 0.674971516202016 73841.8838725006
1/(1+14%)^4 0.592080277370189 64773.5823442987
1/(1+14%)^5 0.519368664359815 56818.9318809638

Total 375579.057993116

PV of cash inflow (Cash

PVIF @15% inflow X PVIF)
0.869565217391304 95130.4347826087
0.756143667296787 82722.1172022684
0.657516232431988 71932.2758280595
0.571753245593033 62549.8050678779
0.49717673529829 54391.1348416329

Total 366725.767722447

PV of cash inflow (Cash

PVIF @16% inflow X PVIF)
0.862068965517241 94310.3448275862
0.743162901307967 81302.0214030916
0.640657673541351 70087.9494854238
0.552291097880475 60420.6461081239
0.476113015414202 52086.7638863138

Total 358207.725710539
 0 1 2
10000 8000 6000
10000/5 2000

Project A

Before tax
Year cash flow Depreciation PBT Tax @ 50% PAT
1 4000 2000 2000 1000 1000
2 4000 2000 2000 1000 1000
3 4000 2000 2000 1000 1000
4 4000 2000 2000 1000 1000
5 4000 2000 2000 1000 1000

5000

Project Payback period

10000

3.33 YEARS

Average rate of return(ARR) =Average Annual accounting profit*10

1000/5000

20%
NPV=PV of cash inflows-PV of cash outflow

11372.36-10000
 1372.36

Project B

Before tax
Year cash flow Depreciation PBT Tax @ 50%
1 6000 2000 4000 2000
2 3000 2000 1000 500
3 2000 2000 0 0
4 5000 2000 3000 1500
5 5000 2000 3000 1500

Pay back period investment 10000

Cumulative cash
Year Cash flow flow
1 4000 4000
2 2500 6500
3 2000 8500 10000-8500=1500
4 3500 12000
5 3500 15500

PROJECT B PROJECT A
B A
Pay back period 3+1500/3500 Project Payback period =Initial Investment/Cash flo

3.43 years 10000/3000

3 years 5.14 months
3.33
Average rate of return 22.00%
Average rate of return(ARR) =Average Annual accou

NPV 1768.88 11768.88-10000

1000/5000

project 20%
PB A
ARR B NPV=PV of cash inflows-PV of cash outflow
NPV B
11372.36-10000
1372.36
 3 4 5
4000 2000 0

1/(1+r)^n

Cash
flow(PAT+deprec
iation) PVIF @10%
PV of cash flows
3000 0.9090909 2727.27 0.90909091
3000 0.8264463 2479.34
3000 0.7513148 2253.94
3000 0.6830135 2049.04
3000 0.6209213 1862.76

Total 11372.36

10000 8000

accounting profit*100%/ Average annual Accounting profit=5000/5

Average investment10000/2
 PV of cash
PAT Cash flow PVIF @10% flows
2000 4000 0.909090909090909 3636.36
500 2500 0.826446280991735 2066.12
0 2000 0.751314800901578 1502.63
1500 3500 0.683013455365071 2390.55
1500 3500 0.620921323059155 2173.22

5500 Total 11768.88

3500 12M
1500 5.1428571428572
5.14 months

eriod =Initial Investment/Cash flow

years

turn(ARR) =Average Annual accounting profit*100%/Average Investment

flows-PV of cash outflow

6000 4000 2000 0
1) Annual Depreciation of Machines

Machine 1 30,00,000-5,00,000/5

500000

Machine 2 35,00,000-5,00,000/6

500,000

2)calculation of cash flows

Machine 1 Machine 2
Expected earnings after tax 775000 825000
Add:Depreciation 500000 500000
Annual Cash flows 1275000 1325000

3) NPV calculation as follows:

Machine 1
Year Cash flows PVIF @14%
1 1275000 0.877
2 1275000 0.769
3 1275000 0.675
4 1275000 0.592
5 1275000 0.519
5 500000 0.519
6
6
Total

Pv of inflows-Pv of outflows
NPV of machine 1 1635300

NPV of machine 2 1877775

Since the NPV of machine 2 is greater than machine 1 we will select Machine 2
,000-5,00,000/5

,000-5,00,000/6

PAT

chine 1 Machine 2
PV of cash flow Cash flows PVIF @14% PV of cash flow
1118175 1325000 0.877 1162025
980475 1325000 0.769 1018925
860625 1325000 0.675 894375
754800 1325000 0.592 784400
661725 1325000 0.519 687675
259500
1325000 0.455 602875
500000 0.455 227500
4635300 Total 5377775

4635300-3000000

5377775-3500000

will select Machine 2

 1) Initial cost of the investment

2)Depreciation

3)Net cash flows as follows:

Year
1 Initial Cost
Revenue -COGS 2 Before tax CFs
3 Less:Depreciation
4 PBT
5 Tax @ 35%
6 PAT
7 Add:Depreciation
8 Working capital released
9 Net Cash flow(6+7+8)
10 PV @ 12%
11 PV( 9 X 10 )
12 NPV

NPV
of the investment

cost of equipment 600000

net working capital 80000
680000

120000 600000/5

as follows:

('000)
Cash Flows
0 1 2 3 4 5
-680
240 275 210 180 160
eciation 120 120 120 120 120
120 155 90 60 40
42 54.25 31.5 21 14
78 100.8 58.5 39 26
eciation 120 120 120 120 120
apital released 80
198 220.75 178.5 159 226
1 0.8929 0.7972 0.7118 0.6355 0.5674
-680 176.7857142857 175.9805 127.0528 101.04737 128.238469
29.10

709.104880848568 680
pv ON INFLOWS MINUS PV OF OUTFLOWS

709.10-680

29.1
240

84

156
1) Calculation of depreciation on WDV basis

Closing WDV
(Opening value-
Year Opening Value Depreciation @ 20% depreciation)
1 400 80 320
2 320 64 256
3 256 51.2 204.8
4 204.8 40.96 163.84
5 163.84 163.84 0

2) Calculation of Cash flows:

Tax rate 50%
discount rate 12%

Profit before
Year depreication and taxes Less:Depreciation PBT
1 160 80 80
2 160 64 96
3 180 51.2 128.8
4 180 40.96 139.04
5 150 163.84 -13.84

3) NPV=PV of cash inflows-PV of cash outflow

37.96 lakhs
 163.84
0
163.84 STCL
81.92 tax saving

Since the project life is 5 years and at the end the scrap value is zero the entire amount of wdv at thebegining of year 5 is a STC

32.768

Rs in lakhs

Less:Tax @50% PAT Cash flow(PAT+depreciation) PVIF @ 12% PV

40 40 120 0.89285714286 107.14
48 48 112 0.79719387755 89.29
64.4 64.4 115.6 0.71178024781 82.28
69.52 69.52 110.48 0.6355180784 70.21
-6.92 -6.92 156.92 0.56742685572 89.04

Total 437.96
dv at thebegining of year 5 is a STCL.Since it is a loss there is tax saving on loss
1) Calculation of depreciation on WDV basis

Year Opening Value Depreciation @ 20%

1 400 80
2 320 64
3 256 51.2
4 204.8 40.96
5 163.84 32.768

2) Calculation of Cash flows:

Tax rate 50%
discount rate 12%

Profit before
Year depreication and taxes Less:Depreciation
1 160 80
2 160 64
3 180 51.2
4 180 40.96
5 150 32.768
5 Net proceeds SV

3) NPV=PV of cash inflows-PV of cash outflow

37.96 lakhs
131

0
 Closing WDV (Opening
value-depreciation) 163.84
320 0
256 163.84
204.8 81.92
163.84
131.072

32.768

PBT Less:Tax @50% PAT Cash flow(PAT+depreciation)

80 40 40 120
96 48 48 112
128.8 64.4 64.4 115.6
139.04 69.52 69.52 110.48
117.232 58.616 58.616 91.384
65.536

Book value at the beginning o 163.84

Less:Scrap value 0
WDV 163.84
Less:Depreciation @ 20% 32.768

Tax benefit on dep

Net proceeds=SV-T(SV-BV)
0-50%*(0-131.072)
65.536
 0

LOSS Tax credit

131 65.5
STCL
tax saving

Rs in lakhs

PVIF @ 12% PV
0.89285714286 107.14
0.79719387755 89.29
0.71178024781 82.28
0.6355180784 70.21
0.56742685572 51.85
0.56742685572 37.19
Total 437.96
1) Initial Cash Flow

Cost of new machine

less Net sale proceeds of old machine
Add Tax payable on sale of old machine @ 40% (250000*40%)

Initial Cash Outflow

2) Interim year cash flows

Particulars
Production(units)

Selling Price ( p.u)

Variable Cost(p.u)
Earnings before depreciation and tax per unit(SP -VC)
Total Earnings before depreciation and tax (units* earnings)
Less:Depreciation

(60,00,000-250000)/5
Earning after depreciation before tax
Less:Tax @40%
Earning after depreciation and tax
Add:Depreciation
Net cash inflow

3) Terminal cash flows

a) New Machine

Net Salvage Value

b) Old machine
Cash realised on disposal of existing machine after 5 years Rs.35,000

Incremental cash flow

4) Computation of NPV
Incremental cash inflows
Add:terminal year cash inflow

Less:Additional cash outflow

NPV
 6,000,000 cost
250,000 benefit
100,000 cost

5,850,000

Existing Machine New Machine Incremental

80000 100000

200 200
183 160.5 153
17 39.5
1,360,000 3,950,000 2,590,000

no depreciation since
fully depre as for tax
purpose 1,150,000 1,150,000
1,440,000
576,000
864,000
1,150,000
2,014,000

250,000 in this case since the WDV of the machine at the begininig of the 5 th year will be Rs.250000 and the

5 years Rs.35,000

215000 250000-35000
1 to 5 2284000 3.352 7655968
5 215000 0.4972 106898
7762866
0 5850000 1 5850000

NPV 1912866

1912866
of the 5 th year will be Rs.250000 and the SV value is also Rs.250000 there will not be any STCG /STCL
7655968
106898
Year Revenues Les:Op costs Less;Depreciation PBT

1 40000 7500 9250 23250

2 40000 7500 9250 23250
3 40000 7500 9250 23250
4 40000 7500 9250 23250
5 40000 7500 9250 23250
6 40000 7500 9250 23250
7 40000 7500 9250 23250
8 40000 7500 9250 23250
8

NPV

Pv of cash inflows
Less: PV of cash outflow
NPV

Since the NPV is negative hospital should not purchase the d

 OC
(commission
Less:Tax @ 30% PAT PAT +dep income) cash inflow(PAT+dep-OC)

6975 16275 25525 12000 13525

6975 16275 25525 12000 13525
6975 16275 25525 12000 13525
6975 16275 25525 12000 13525
6975 16275 25525 12000 13525
6975 16275 25525 12000 13525
6975 16275 25525 12000 13525
6975 16275 25525 12000 13525
6000

74953.92 13525
80000 6000
-5046.08

ospital should not purchase the diagonistic machine

PVIF @ 10% PV

0.909 12295.45 1/(1+10%)^1

0.826 11177.69

0.751 10161.53

0.683 9237.76

0.621 8397.96

0.564 7634.51

0.513 6940.46

0.467 6309.51

0.467 2799.04

Total 74953.92
PV of cash inflows

5.335 72154.9
0.467 2802.0
74956.9
Cash Outflow 0

Cost of Pump 1000000

Increase in WC 500000

Total Oulay 1500000

Additional Sales
Petrol

Diesel

Additional Revenue

Additional Cost

Salary

Insurance

Maintainence

Power

Dep

Total cost
EBT

Tax

Profit after Tax

CFAT

PV of Cash flows ₹ 803,744.23

Relase of WC ₹ 160,986.62

Salvage value 0

Total PV OF cash inflows ₹ 964,730.84

Cash Outflow ₹ -1,500,000.00

NPV ₹ -535,269.16
 1 2 .. 10

184000

40000

224000 224000 224000

24000 24000 24000

10000 10000 10000

12000 12000

13000 13000

100000

159000
65000

22750

42250
1 2 3 4 5 6 7
142250 142250 142250 142250 142250 142250 142250
 8 9 10
142250 142250 142250

500000
 0 1
Cash Outlay
Equipment 240
WC 25

-265
($15.94)

Total PV Cash Outlay -28094388

Cash inflows 1

Sales in Units 80000

Contribution 60 per unit 4800000

Fixed Cost 1600000

Advertisement 3000000
 Dep 3000000

Profit/loss BEFORE TAX -2800000

Tax @50% -1400000

PAT -1400000

Add Dep 3000000

Cash inflow 1600000

PV of Cash Inflows ($1,817,474.53)

WC Release
Salvage

Initial Equipment

Additional Equipment -265

 2

20

-20

2 3 to 5 6 to 8

120000 300000 200000

7200000 18000000 12000000

1600000 1600000 1600000

1500000 1000000 400000

3000000 3300000 3300000

1100000 12100000 6700000

550000 6050000 3350000

550000 6050000 3350000

3000000 3300000 3300000

3550000 9350000 6650000

?"?/

8
2500000 Lkh

2000000
 Capacity Units
100% 400000

Year Capacity Units Sale Price p

1 20% 80000 100
2 30% 120000 100
3 to 5 75% 300000 100

6 to 8 50% 200000 100

P/V Ratio
VARIABLE cost
= Contribution

P/V Ratio= Contribution/Sales

Total Sales P/V Ratio Contribution
8000000 60% 4800000
12000000 60% 7200000
30000000 60% 18000000

20000000 60% 12000000

 No dep
Prabhav

Sales 30
COGS 25

Gross 5

Dep 0

PBT 5

Taxe 1.5

PAT 3.50

CASH 3.50
Dep charged
Shashank

30
25

-1.5 0

3.5

1.05 0.5

2.45

3.95
 0

Initial Outlay

Fixed Capital inv -40000

Net Working Capital Inv -12000

Total Cash Outflow -52000

After Tax operating Cashflows

Sales

cogs Cash operating expenses

Gross Profit

Depreciation

EBIT Operating income before taxes

Interest

Taxes

PAT

Interest*(1-t)'
Add back : Deprecaition

After Tax Operating Cash Flow

After tax salvage value

Building

Equipment

Return of Net working Capital

Total net Cash flows -52000

NPV ₹ 13,977

IRR 21.9%
 1 2 3 4

80000 80000 80000 80000

58000 58000 58000 58000

22000 22000 22000 22000

3512 5744 3664 2544

18488 16256 18336 19456

7395 6502 7334 7782

11093 9754 11002 11674

 3512 5744 3664 2544

14605 15498 14666 14218

Loss
17726 -6816 Market value - book valu
-2726

3488 Profit
1280
12000
512
14605 15498 14666 47432

0
Discount Rate/ Reqd Rate/Cost of Cpaital;
12%
t value - book value
 Revenu

Revenues purchases COGS

COGS

Profit

Asset
Current Assets :
Recei

Liabilities
Current Liabilities
Payab

Cash flow from oper

 Income Statement

2018 2017

120 110

50 45

70 65
Balance Sheet
2018 2017

ent Assets :
20 15

ent Liabilities
10 5

Cash flow from operation

Outflow

Total Cash Outflow

After Tax operating Cashflows

Sales

cogs Cash operating expenses

Gross Profit

Additional Depreciation

EBIT Operating income before taxes

Interest

Taxes
 PAT

Interest

Add back : Deprecaition

After Tax Operating Cash Flow

After tax salvage value

Mercedes sell
CASH INFLOW
MKT
BV
Mercedes

Return of Net working Capital

Total net Cash flows

NPV

IRR
 0 1 2 3 4 5

Mercedes 24000

Honda 15 years - 15000

Today -5000

market value -2000

Tax credit -1200

Net working Capital 3000

23800

6000 6000 6000 6000 6000

6920 9800 2600 680 -1000

-920 -3800 3400 5320 7000

0 0 0 0 0

-368 -1520 1360 2128 2800

 -552 -2280 2040 3192 4200

0 0 0 0 0

6920 9800 2600 680 -1000

6368 7520 4640 3872 3200

Cash inflo 4000

4000 Tax Pay' -1600

0
2400

3000

-23800 6368 7520 4640 3872 8600

₹ -1,197

9.5%