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After Tax Cash Flows in Net Present Value Analysis (LOB)

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Kramer Corporation is considering two investment projects, each of which would require $50,000. Cost and cash flow data concerning the two projects are given below:

Project A Project B
Investment in high speed photocopier $50,000
Investment in working capital $50,000
Net annual cash inflows $9,000
Life of the project 8 years 8 years

The high-speed photocopier would have a salvage value of $5,000 in eight years. For tax purposes, the company computes depreciation deductions assuming zero salvage value and uses straight-line depreciation. The photocopier would be depreciated over eight yea rs. At the end of eight years, the investment in working capital would be released for use elsewhere. The company requires an after-tax return of 10% on all investments. The tax rate is 30%.

Required:
Compute the net present value of each investment project. (Round to the nearest whole dollar.)

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Solution Summary

After tax cash flows in net present value analysis is discussed for Kramer Corporation considering two investment projects.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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