Year 0 1 2 3

Fixed capital investment -2000

Net working capital investment -200 (50) (263) (81)

Cumulative Net Working Capital (250) (313) (344)
Initial Outlay (2,200)

Sales 1200 1,500 1,875

Growth rate 25% 25%

Fixed Cash Expenses 150 150 150

Variable Cash Expenses 480 585 713

% of sales 40% 39% 38%

Depreciation -600 -700 -400

% of fixed capital investment 30% 35% 20%

Operating Income Before Taxes (30) 65 613

Taxes 30% (9) 20 184

Operating Income After Taxes (21) 46 429

Add back: Depreciation 600 700 400

After-tax Operating Cash Flow 579 746 829

Salvage Value

Taxes on salvage value

Return of Net Working Capital

Terminal Cash Flows

Total After Tax Cash Flows (2,200) 579 746 829

Discount Rate 12%

Discounted Cash Flows (2,200) 517 594 590

NPV 1,341 $1.3 mil

IRR 28.7%
 4 5 6

(297) (119)
(378) (416) -

2,063 2,269 2,496

10% 10% 10%

130 130 130

784 862 948

38% 38% 38%

-200 -100 0
10% 5% 0% 100%

949 1,177 1,417

285 353 425

664 824 992

200 100 -
864 924 992

150

45
 416

521

864 924 1,513

549 524 767

 Year

Marginal Tax Rate

Discount Rate

Initial Outlay

- Purchase Price
- Shipping/Installation
= - Depreciable asset
– Investment in working capital
+ After-tax proceeds from sale of old asset
= – Net Initial Outlay

Annual Cash Flows

Incremental revenue
– Incremental costs
– Depreciation on project
= Incremental earnings before taxes
– Tax on incremental EBT (Based on marginal tax rate)
= Incremental earnings after taxes
+ Depreciation reversal (Because it is not an actual cash flow)
= Annual Cash Flow

Terminal Cash Flow

+ Salvage Value
+/- Tax gain/loss from sale
+ Recover Working Capital
= Terminal Cash Flow

Tax gain/loss from Sale

Salvage value
 (less) book value
Capital gain
Tax on capital gain

Net Cash Flows

Discounted Cash Flows
NPV
IRR
 0 1 2 3 4 5

34%
14%

(127,000)
(20,000)
(147,000)
(4,000)
-
(151,000)

85,000 85,000 85,000 85,000 85,000

35% (29,750) (29,750) (29,750) (29,750) (29,750)
(29,400) (29,400) (29,400) (29,400) (29,400)
25,850 25,850 25,850 25,850 25,850
8,789 8,789 8,789 8,789 8,789
17,061 17,061 17,061 17,061 17,061
29,400 29,400 29,400 29,400 29,400
46,461 46,461 46,461 46,461 46,461

50,000
(17,000)
4,000
37,000

50,000
 -
50,000
17,000

(151,000) 46,461 46,461 46,461 46,461 83,461

(151,000) 40,755 35,750 31,360 27,509 43,347
27,721
21%
Year 0 1 2 3

Fixed capital investment -2000

Net working capital investment -200 (50) (63) (31)

Cumulative Net Working Capital (200) (250) (313) (344)

Sales 1200 1,500 1,875

Growth rate 25% 25%

Fixed Cash Expenses 150 150 150

Variable Cash Expenses 480 585 713

% of sales 40% 39% 38%

Depreciation 600 700 400

% of fixed capital investment 30% 35% 20%

Operating Income Before Taxes (30) 65 613

Taxes 30% (9) 20 184

Operating Income After Taxes (21) 46 429

Add back: Depreciation 600 700 400

After-tax Operating Cash Flow 579 746 829

Salvage Value

Taxes on salvage value

Return of Net Working Capital

Total After Tax Cash Flows (2,200) 529 683 798

Discount Rate 12%

Discounted Cash Flows (2,200) 472 544 568

NPV 1,181

IRR 26.6%
 4 5 6

(34) (38)
(378) (416)

2,063 2,269 2,496

10% 10% 10%

130 130 130

784 862 948

38% 38% 38%

200 100 0
10% 5% 0%

949 1,177 1,417

285 353 425

664 824 992

200 100 -

864 924 992

150

-45

416

830 886 1,513

527 503 767
Year 0 1 2 3

Fixed capital investment -2000

Net working capital investment -200 (50) (63) (31)

Cumulative Net Working Capital (200) (250) (313) (344)

Sales 1200 1,500 1,875

Growth rate 25% 25%

Fixed Cash Expenses 150 150 150

Variable Cash Expenses 480 585 713

% of sales 40% 39% 38%

Depreciation 600 700 400

% of fixed capital investment 30% 35% 20%

Operating Income Before Taxes (30) 65 613

Taxes 40% (12) 26 245

Operating Income After Taxes (18) 39 368

Add back: Depreciation 600 700 400

After-tax Operating Cash Flow 582 739 768

Salvage Value

Taxes on salvage value

Return of Net Working Capital

Total After Tax Cash Flows (2,200) 532 677 736

Discount Rate 14%

Discounted Cash Flows (2,200) 467 521 497

NPV 736

IRR 24.0%
 4 5 6

(34) (38)
(378) (416)

2,063 2,269 2,496

10% 10% 10%

130 130 130

784 862 948

38% 38% 38%

200 100 0
10% 5% 0%

949 1,177 1,417

380 471 567

569 706 850

200 100 -

769 806 850

150

-60

416

735 768 1,356

435 399 618