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Question

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Rochak · Accepted Answer

Solution
Initial cost in pounds = $7,000,000 * 1/1.50
= 4,666,900
Real rate for borrowing = 15%
Present Value of after-tax operating cash flow
	Year
	St
	Quantity
	Quantity * 4.4 * (1.03)^t-1
	Quantity lost sales
	Quantity lost sales * 3 * (1.045)^t
	OCF
	Present value
	1
	        0.6764 
	       3,90,000 
	       11,60,702 
	       (2,32,000)
	       (7,27,320)
	         4,33,382 
	         2,44,955 
	2
	        0.6863 
	       4,09,500 
	       12,73,673 
	       (1,74,000)
	       (5,70,037)
	         7,03,636 
	         3,45,832 
	3
	        0.6963 
	       4,29,975 
	       13,97,548 
	       (1,16,000)
	       (3,97,126)
	       10,00,422 
	         4,27,566 
	4
	        0.7064 
	       4,51,474 
	       15,33,373 
	          (58,000)
	       (2,07,498)
	       13,25,875 
	         4,92,748 
	5
	        0.7167 
	       4,74,048 
	       16,82,524 
	                   -   
	                   -   
	       16,82,524 
	         5,43,733 
	6
	        0.7271 
	       4,97,750 
	       18,46,053 
	                   -   
	                   -   
	       18,46,053 
	         5,18,765 
	7
	        0.7377 
	       5,22,638 
	       20,25,613 
	                   -   
	                   -   
	       20,25,613 
	         4,94,977 
	
	
	
	
	
	
	
	       30,68,576 
Present value of depreciation tax shield
	Year
	St
	Dt
	Present value of depreciation tax shield
	1
	        0.6764 
	       10,00,000 
	         2,13,761 
	2
	        0.6863 
	       10,00,000 
	         1,95,837 
	3
	        0.6963 
	       10,00,000 
	         1,79,404 
	4
	        0.7064 
	       10,00,000 
	         1,64,340 
	5
	        0.7167 
	       10,00,000 
	         1,50,552 
	6
	        0.7271 
	       10,00,000 
	         1,37,911 
	7
	        0.7377 
	       10,00,000 
	         1,26,340 
	
	
	
	       11,68,145 
Present value of Concessionary Loan Payment
	Year
	St
	Principal Payment
	It
	LPt
	Present value
	1
	        0.

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