Net Present Value (NPV) and Internal Rate of Return (IRR) Analysis

11. NPV AND IRR ANALYSIS
The marginal tax incremental rate was ascertained as 30% while the WACC was 17.35%, and a discount factor of 1.1735. The cost of capital analysis determined a Weighted Average Cost of Capital (WACC) to be 68,950 representing 100% of the startup capital. The after tax Cost of Capital (CoC) was determined as 17.35% of the WACC. The CoC analysis established the following as sources for the initial investment capital: entrepreneurs (Own funding) $20,000, representing 29.0% of the startup cost; Bank loans $5,600 accounting for 8.12% of the startup cost. Funds obtained from credit cards and other investors accounted for 10.15% and 52.72% of the WACC respectively. The pretax percentage cost of capital (CoC) for own contribution and bank loan (Max of 80% of LT assets) was 5% and 10% respectively.
The weighted Average Cost of Capital (WACC) was then used in the NPV and IRR analysis. The pre-tax CoC and after Tax CoC constituted 24.78% and 17.35% of the WACC respectively. The percentage WACC was then utilized alongside the marginal tax rate of 30% and a discount factor of 1.1735 as incremental benchmarks to either accept or reject the P1+P2+P3 in the NPV IRR Analysis.
11.1 Incremental Values
The first option in incremental value analysis involved assessment of P1+P2+P3 PVs of incremental benefits and PVs of cash flows from operations for the entire 5 year period. In computing WACC, cash flows from operations for the 5 year period were obtained as follows: $19,346, $37,694, $50,633 and $50,633 respectively. Release of working capital at the end of Year 5 was $22,100 with a similar corresponding nominal value. Cash flows resulting from the sale of assets were $1,400 and a corresponding nominal value of 1.0. The cumulative PV of cash flows from operations was determined as $124, 641 while cash inflows resulting from sale of Assets was determined as $629. The present value (PV) of incremental cost of P1+P2+P3 was then calculated. To ascertain the PV of incremental costs for P1+P2+P3; the PV of the initial cash outflow and the PV of the opportunity cost of time were computed against the PV of incremental benefit of P1+P2+P3. The PV of initial cash outflow of $99,200 and PV of the opportunity cost of time of $19,542 were used to calculate the Net Pr...