Monterola Constration

PERFORMANCE WITH INFLATION RISK AND PAYMENT OF IMPUETSOS

I also have wondered what influence INFLATION TAX EXEMPT and the selection of investments. Well, it is not difficult but involves the following procedure:

(1) assume a payout equal to 14 monetary units, and that in the absence of inflation and taxes, generates two net cash flows in year 1 and 2 and
YEAR 1


Costs Income + 12 - 2 10 Net cash



Year 2 Costs
Income + 12 - 2 10 Net cash


Assume a tax rate equal to 36 % But taking into account that the investment is 14 then 14 / 2 = 7 and assume that the average inflation rate is 13% for revenues and 12% for expenses. With all these damages the net cash flows in nominal terms before tax would be: Year 1


Income 12 (1,13) = 13.56 Costs
-2 (1.12) = - 2.24
Flow Net value = 11.32


Revenue Year 2 12 (1.13), to the 2 = 15.32 -2
Costs (1.12), to the 2 = - 2.53 Net cash
nominal = 12 , 79

tax payments for Year 1:
0.36 (11.32 to 7) = 1.55

tax payments for the Year 2:
0.36 (12.79 - 7) = 2.08

The nominal net cash flows and after tax are: Year 1



(11.32 to 1.55) = 9.77



Year 2 (12.79 to 2.08) = 10.71

But cash flow after tax and real values \u200b\u200bare: Year 2


9.77 / 1.12 = 8 Year 1 72


10.71 / (1.12) raised to the 2
10.71 / 1.2544 = 8.53

then the Net Present Value (NPV) after tax in real terms (net with 10%) would be as follows:
NPV = - 14 + 8.72 / 1.10 + 8.53 / (1.10) raised to the 2 = - 14 + 7.93 + 7.04 = 0.97

As the NPV is positive and greater than zero: the project is aceptable.Aunque is in a dangerous limit .