QS

7 Depreciation 450000
Tax rate 40%
Tax shield 180000

8 PAT 2800000
Depn 500000
Change in WC -410000

FCF 3710000

9 FCF For Firm

Sales 2300000
COGS 980000
Depn 600000
Taxes 216000

PAT 504000
+ Depn 600000
FCF 1104000
10
Cost of Machine 8
Transportation cost 0.07
Total cost of machine 8.07
Depn per year 1.00875

Incremental revenue 5
Incremental costs 2.3
Depn 1.00875
Tax rate 40%
Incremental earnings 1.01475

Incremental earnings 1.01475

+ Depn 1.00875
Incremental Cashflow 2.0235

11 1 2 3 4 5
Cash 6 12 15 15 15
AR 21 22 24 24 24
Inventory 5 7 10 12 13
AP 18 22 24 25 30

Net Working Capital 14 19 25 26 22

Changes in NWC 14 5 6 1 -4

13 1 2
Revenue 125 160
Opex 40 60
 Depn 25 36
Tax rate 35% 35%
Incremental earnings 39 42

Incremental earnings 39 42
Increase in Working C 2 8
Capex 30 40
Depn 25 36
FCF 32 30

14
Net Income 250
Depn 100
Capex 200
Change in NWC 10
FCF 140

16 0 1 2 3 4 5 6
Gross profit of new machine 40000 40000 40000 40000 40000 40000
Gross profit of old machine (opportun 20000 20000 20000 20000 20000 20000
Final Gross Profit 20000 20000 20000 20000 20000 20000
Depreciation 5000 5000 5000 5000 5000 5000
EBIT 15000 15000 15000 15000 15000 15000
Tax rate 45% 45% 45% 45% 45% 45%
EBIT (1-t) 8250 8250 8250 8250 8250 8250

EBIT (1-t) 8250 8250 8250 8250 8250 8250

Depn 5000 5000 5000 5000 5000 5000
Cost of new machine -150000
Proceeds from old ma 50000

Tax shield benefit

from sale of
machine (Market
Rate - Book
Value)*Tax Rate) 22500

FCF -77500 13250 13250 13250 13250 13250 13250

NPV ₹ 3,915.51 ₹ 81,415.51

-77500

18 Ignore sunk cost

Capex of outfitting -30000
NWC -5000
Opportunity cost -115000

FCF -150000
19 Cost of machine 1
Den per year 0.1428571429
Depn for three years 0.4285714286
BV today 0.5714285714
Machine sold today 0.7
Tax impact as machine 0.045
Incremental cash flo 0.655
 7 8 9 10
40000 40000 40000 40000
20000 20000 20000 20000
20000 20000 20000 20000
5000 5000 5000 5000
15000 15000 15000 15000
45% 45% 45% 45%
8250 8250 8250 8250

8250 8250 8250 8250

5000 5000 5000 5000

13250 13250 13250 13250