The following pertains to a project being considered by Yerevan Technologies Ltd.

(YTL)
Year
0
1
2
3

1. Initial Investment
300.00
2. Revenues
3. Variable costs
4. Depreciation
5. Deferred revenue expenses written off

300.00
75.00
75.00
10.00

325.00
81.25
75.00
10.00

350.00
87.50
75.00
10.00

500.00
125.00
75.00
10.00

6. Administration and general expenses 3

20.00

20.00

20.00

20.00

7. Short Term Interest 4

8. Long Term Interest
9. Profit before Tax
10. Tax (40%)
11. Net Income
12. Addition to Net Working Capital
13. Salvage Value (after tax)

24.00
10.00
86.00
34.40
51.60
50.00

26.00
10.00
102.75
41.10
61.65
100.00

28.00
10.00
119.50
47.80
71.70

40.00
10.00
220.00
88.00
132.00
-150.00
25.00

Cost of capital :
10%
Tax Rate:
40%
All figures are in Rupees crores
Notes
1

Initial investment includes Rs.

The project is expected to reduce cash flow in an existing product because of overlapping market, as follows:

50.00

(this amount was incurred for a different project that was subsequently abandoned)
Year
1

-10

-15

-20

-20

Administrative and general expenditure includes alloction of head office expenses of:

Short term interest partains bank loan which is expected reduce to zero each year

a Assess the cash flow relevant for DCF analysis

b Compute the NPV of the project

Page 1 of 3

t that was subsequently abandoned)

Page 2 of 3

Year
2

1
1. Initial Investment
300.00
2. Revenues
3. Variable costs
4. Depreciation
5. Deferred revenue expenses written off
6. Administration and general expenses
7. Short Term Interest
8. Long Term Interest
9. Profit before Tax
10. Tax (40%)
11. Net Income
12. Addition required to Net Working Capital
13. Salvage Value (after tax)
Cost of capital :
Tax
Cash flow
Capital Expenditure

300.00
75.00
75.00
10.00
20.00
24.00
10.00
86.00
34.40
51.60
50.00

325.00
81.25
75.00
10.00
20.00
26.00
10.00
102.75
41.10
61.65
100.00

350.00
87.50
75.00
10.00
20.00
28.00
10.00
119.50
47.80
71.70

500.00
125.00
75.00
10.00
20.00
40.00
10.00
220.00
88.00
132.00
-150.00
25.00

10%
40%

-250.00

Net Income
Add
Depreciation
Def.Rev Exp w/o
After tax L.T.Interest
H.O.Allocation
Less
Project externality
Working Capital

51.60

61.65

71.70

132.00

75.00
10.00
6.00
4

75.00
10.00
6.00
4

75.00
10.00
6.00
4

75.00
10.00
6.00
4

-10

-15

-20

-20

-50.00

-100.00

150.00

Salvage Value (after tax)

25.00

Net

-250.00

NPV

234.28

86.60

41.65

146.70

382.00