Question 1 – Pretax NPV
NPV = PV – I
= $13,200,000 - $11,400,000
=$1,800,000
Investment (20y) = 11,300,000 + 100,000
= $11,400,000
Earnings (20y) = 20 x 55 x 300 x 40
= $13,200,000
Question 2 - After-tax NPV
R = 8%
NPV = Sum (cash flow/ [1+R] ^T) – I
= (660,000/1.08^20) – (1800000/20)
=128728.92 – 90,000
=$38,728.92
According to the calculation, each year enjoys a profit of $38,728.92 proving that the investment that the company is engaging in is viable in the long term future.
Question 3 - subjective factors
Some subjective factors that would be considered in the course of project implementation include the method of implementation. If the projects were implemented simultaneously, the substantive method of finding the net present value would change as considerations would be made for each time the project was implemented in the new phase. However, assuming that each lift was furnished at the same time, the calculations are obtained as above.
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Additionally, tax rates would be considered in this case to ensure that they remain constant during this period. This means that all fluctuating factors need to be assumed to be constant. For example, one could consider the effect of a changing customer flow within the facility after the implementation of the program. As such, it is necessary to ensure that other programs such as quality management and marketing remain constant to achieve the expected incomes over the next two decades planned for.
