chapter 11

Question 1

how to find the NPV for the lease and purchase question

Answer 1

1. find the annual deprication
2. then find the tax sheild (deprication x tax rate)
3. savings after deprication (savings x (1- tax rate))
4. take the sum of tax sheild and savings after tax this is the cashflow
5. find the debt percentage after tax (debt x (1- tax rate))
6. use the percentage found above in the PVA table
7. multiply the cashflow by this number

Question 1

how to find the incremental after tax annual cashflow

Answer 1

1. find the annual depriciation
2. find the tax shield (deprication x tax rate)
3. find the savings after tax (savings x (1- tax rate))
4. add the tax shield and savings after tax