AFM

Adjusted present value

Amberle co dec 2018

A) Calculate the adjusted present value (APV) for the project and conclude whether the project shou

million'
year 0 1 2
investment (150)
operating cashflows 28.5 36.7
residual value
workings working capital (6.000) (0.480) (0.389)
working 1
working capital (156.00) 28.02 36.31
DF@12% 1.00 0.89 0.80
year 0 6 (156.00) 25.02 28.95
1 6.48
2 6.8688 Base NPV (5.15)
3 7.21224
4 7.5007296
issue cost 2.47
cost of equity
Ke= Rf+Be(Rm-Rf) finance cost on bank loan
0.11980 annuity factor 3.312
21.14

opening bal interest repayment

70.00 5.60 -21.14
54.46473 4.36 -21.14
37.69 3.01 -21.14
19.57 1.57 -21.14
interest tax saved
year 1 5.60 1.68
2 4.36 1.31
3 3.01 0.90
4 1.57 0.47

finance cost on government lo 3.10% tax saved

year 1 2.48 0.744
2 2.48 0.744
3 2.48 0.744
4 2.48 0.744
 subsidized loan
9.088128

Adjusted PV
base NPV (5.15)
issue cost (2.47)
tax saved on interest 3.73939791
tax saved on interest 2.46
subsidized loan 9.088128
APV 7.67

Question 2 june 2021 AFM exam

millions
year 0 1 2
investment (120)
Cashflows 20.90 20.60
tax @20%
post tax cashflow (120) 20.90 20.60
cost of equity ke @11.4% 1 0.88 0.77
Ba=Be*E/E+D(1-t) (120) 18 16

1.418*5/5+(1*(0.8)) Base NPV (4.51)

Ba= 1.396
RF=3%
RM=9% issue cost 2.04
ke 11.4%
installments
annuity factor 3.24
loan 50.00
per installment 15.4320988

finance cost 9%
opening interest repayment
50.00 4.50 (15.43)
39.07 3.52 (15.43)
27.15 2.44 (15.43)
 14.16 1.27 (15.43)

tax shield on bank loan

interest tax saved
year 1 4.50 0.90
2 3.52 0.70
3 2.44 0.49
4 1.27 0.25

tax shield on government loantax saved

year 1 1.4 0.28
2 1.4 0.28
3 1.4 0.28
4 1.4 0.28

subsidized benefit
5.7024

Adjusted pv
base NPV
issue cost
tax shield on bank loan
tax shield on gov loan
subsidized benefit
Adjusted PV

Tipplottine question
0
working 1 year 0 1 2
depreciation investment (30,600)
year 1 30600 cashflows 2,000 14,500
depreciation -7650 marketing cost (9,000) (2,000)
balance 22950 Deprecition (7,650) (5,738)
year 2 -5737.5 residual value
17212.5 Cashflows (14,650) 6,763
year 3 -4303.125 tax @30% 0
12909.375 post tax cashflows (14,650) 6,763
year 4 -12909.375 Depreciation 7,650 5,738
0 residual value
 working capital (3,000) (240) (194)
working 2 investment (30,600)
working capital (33,600) (7,240) 12,306
year 0 3000 Ke @9% 1 0.92 0.84
year 1 3240 (33,600) (6,642) 10,357
year 2' 3434.4
year 3 3606.12 base npv (919)
year 4 3750.3648

issue cost 1275

tax shield on government loan

year 30600
year 1 673.2
annuity factor 3.546
716

subsidized loan benefit

2,127

Burung co
specimen sep 2018

corrected NPV
year 0 1 2
working 1 investment (38)
depreciation sales revenue 24.87 42.69
year 0 direct project costs (14.37) (23.75)
16,000 Depreciation (8.00) (2.00)
1 8000 operating cashflows 2.50 16.94
8,000 tax @20% (0.50) (3.39)
2 2000 post tax cashflows 2.00 13.55
6,000 depreciation 8.00 2.00
3 1500 investment (38)
4,500 working capital (4.97) (3.56) (3.82)
4 500 (43) 6.44 11.73
Ke 9.5% 1.00 0.89 0.80
working capital (42.97) 5.75 9.35
year 0 4.97 (3.56) base NPV 8.603
year 1 8.54 (3.82)
12.36 4.98
7.38
FREE CASHFLOW
Question 1 000'
KODIAK CO year 0 1 2
Revenue 5000 5450 5940.5
cost of sales (3,000) (3,270) (3,564)
depreciation gross profit 2,000 2,180 2,376
year 1 134.52 operating cost (1,877) (2,012) (2,159)
year 2 144.024 operating profit 123 168 218
year 3 155.4288 interest on loan
profit before tax 123 168 218

non currrent assets

balance 1266 free cashflow
year 1 79.2 profit before tax 168 218
balance 1345.2 non cash expenses 135 144
year 2 95.04 investment in NCA (79) (95)
balance 1440.24 less: incremental WC (20) (21.58)
year 3 114.048 less: tax (15) (28)
balance 1554.288 less: interest (74.00) (74.00)
free cashflow 114.5 143
working capital changes
NC 270
cash (50)
balance 220 220

year 1
NC 220
addition 20
balanc 240 20

year 2
NC 239.80
loan 22
balance 261.38 21.58

year 3
NC 261.38
laon 24
balancee 284.91 23.52
whether the project should be accepted or not. (15 marks)

3 4

44.4 50.9
45
(0.343) 7.21

44.06 103.11
0.71 0.64
31.36 65.53

closing balance
54.46
37.69
19.57
(0.00)
DF@8%
0.93 1.55555556
0.86 1.12067355
0.79 0.71800502
0.74 0.34516379
pv of tax save 3.73939791

pv
0.93 0.69
0.86 0.64
0.79 0.59
0.74 0.55
pv of tax save 2.4642

3 4

28.70 104.60

28.70 104.60
0.67 0.59
19 62

closing
39.07
27.15
14.16
 0.01

pV @9%
0.92 0.83
0.84 0.59
0.77 0.38
0.71 0.18
1.98
PV @9%
0.92 0.26
0.84 0.24
0.77 0.22
0.71 0.20
0.91

(4.512)
(2.041)
1.976
0.907
5.702
2.0319259

3 4 5

15,225 15,834
(2,000) (2,000)
(4,303) 591

8,922 14,425
0 (310.5) (4,327.39)
8,922 14,114 (4,327)
4,303 (591) -
13,500
 (172) 3,606

13,053 30,630 (4,327)

0.77 0.71 0.65
10,080 21,699 (2,813)

base npv (919)

issue cost -1275
tax shield on loan 716
subsidized benefit 2,127
APV 648.81

3 4

61.81 36.92
(33.12) (19.05)
(1.50) (0.50)
27.20 17.38
(5.44) (3.48)
21.76 13.90
1.50 0.50
4
4.98 7.38
28.24 25.78
0.71 0.64
20.10 16.39
 3
6475.145
(3,885)
2,590
(2,318) 0.09 0.09 0.09
272

272

272
155
(114)
(23.52)
(43)
(74.00)
173