ciation) are absorbed into product costs at the rate of 150% of direct labour costs. All other fixed costs will be incremental expenses. Tax is 35% of profits, payable one year in arrears. The after-tax cost of capital is 16%. Present Value (PV) of $1; p.a at 16% is as follows:- Year 1 = 0.862 Year 2 = 0.743 Year 3 = 0.641 Year 4 = 0.552 Year 5 = 0.476 Required: Calculate the Net Present Value (NPV) of the project? (Calculate to the nearest $'000) (show all you calculations)
Kovik Ltd is considering a four-year project involving the purchase of equipment costing
$600,000. Tax allowable
would be $1,200,000 per annum and the cost of sales (including depreciation) would be
$900,000 per annum for each of the four years.
All Variable costs are cash expenses and will be one-third of sales. Variable costs consist of
25% direct labour costs and 75% materials costs. General fixed
depreciation) are absorbed into product costs at the rate of 150% of direct labour costs. All
other fixed costs will be incremental expenses.
Tax is 35% of profits, payable one year in arrears. The after-tax cost of capital is 16%.
Present Value (PV) of $1; p.a at 16% is as follows:-
Year 1 = 0.862
Year 2 = 0.743
Year 3 = 0.641
Year 4 = 0.552
Year 5 = 0.476
Required:
Calculate the
all you calculations)
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