Example:

The company is considering to purchase an equipment of CZK 3 000 000. Equipment will be used the
depreciation level no 1 (see table 1). You are not able to pay it at once so split it to two payments. First
1 million will be paid right know and other CZK 2 000 000 in the end of 3rd year.
Estimated revenue and investment costs are summarized in Table 2. Current assets and current liabilities
changes which might happen during the lifetime of the project can be seen in Table 3.
In the end of third year equipment can be sold for CZK 400 000.
The long-term capital represents 40 % and foreign capital 40 % with 6 % p.a. of the total capital.
Corporate tax rate is 20 %.
It is an engineering company with mass production, linked to the major contracts of automotive industry,
whose risk can be characterized by the amount unleveraged beta coefficient of 0.98 and has its
headquarters in the Czech Republic. (use damodaran’s webpage to compete this task and leave in excel
the link with specification how and where did you find specific data on damodaran’s webpage)
Company decided that its return rate of its investments (i.e. discount factor) should be at least company’s
cost of capital.
Table 1: Depreciation table
Depreciation level depreciation time 1. year of depreciation another years of depreciation
1 3 20.00% 40.00%
2 5 11.00% 22.25%
3 10 5.50% 10.50%
4 20 2.15% 5.15%
5 30 1.40% 3.40%
6 50 1.02% 2.02%

Table 2: Expected revenue and investment costs

Year 1 2 3 4 5
Price per piece 20 22 22 22 23
Sold volume 600,000 750,000 800,000 800,000 800,000
Direct costs per piece 15 18 19 19 19
Total Other Costs (Without Depreciation) 1,100,000 1,500,000 1,500,000 1,500,000 1,500,000

Table 3: Expected changes in current assets and short-

term operating liabilities of the investment
Year 1 2 3 4 5
Growth of receivables 300,000 100,000 0 0 -200,000
Growth of inventories 600,000 0 0 0 -500,000
Growth of current liabilities 200,000 0 0 0 -200,000

Evaluate if this investment can be accepted or not using NPV, IRR, discounted cash flow and DEVA (4
methods).