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Answered Same Day Nov 15, 2022

Solution

Rochak answered on Nov 15 2022
43 Votes
Solution
Initial cost in pounds = $7,000,000 * 1/1.50
= 4,666,900
Real rate for bo
owing = 15%
Present Value of after-tax operating cash flow
    Yea
    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
    Yea
    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
    Yea
    St
    Principal Payment
    It
    LPt
    Present value
    1
     0.6764...
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