PLEASE TELL IN A DETAIL WAY HOW TO GET THE NUMBER FOR ALL OF THEM AND WHAT IS THE FUNCTION OF THE TABLE IN THE QUESTION (TABLE WITH INTEREST, PAYMENT, ETC)

5. The Grant Corporation is considering a project which has a five-year life and costs Rs 25,000. It would save Rs 4,100 per year in operating costs and increase reveue by Rs 5,000 per year. It would be financed with a five-year loan with the following payment schedule (annual rate of interest is 8%). No salvage value for the new purchased equipment is assumed at the end of the project. Payment Interest Payment of Principal Balance 626.14 2000 426.14 2073.86 626.14 165.91 460.23 1613.63 626.14 129.09 497.05 1116.58 626.14 89.33 536.81 579.77 626.14 46.37 579.77 0 630.70 2500 If the company has a 12% after tax cost of capital and a 40% tax rate, what is the NPV of the project if the company uses MACRS 3 years class life depreciation? Solution: Note: The financing cash flow has no bearing on the solution what-so-ever. Cash flow before tax = Rs 4,100 + Rs 5,000 = Rs 9,100 Calculation of depreciation: Year 1 2 3 4 Rate 33.33 44.45 14.81 7.41 Depreciation (Rs 25,000 x rate) 11,113 1,852 5 3 4 5 9,100 9,100 9,100 1,852 Calculation of Cash flow: Year 1 Cash flow before tax 9,100 Less: Depreciation EBT Less: Tax@ 40% EAT Add: Depreciation Operating Cash Flow 8793 2 9,100 11,113 (2012) (805) (1207) 11,113 6201 Calculation of NPV Year Cash Flow PVIF @ 12% PV 0 (25,000) 1 1 0.8929 2 3 6941 4 3,941 5 0.5674 NPV =2,727 NPV of project is positive, so the project should be accepted