Explain how did it get the NPV, the Economic Value Added (EVA), and the Market Value Added (MVA) Assuming a agricultural water project that has an initial investment of 1 billion RMB and a time frame of5 years, with a predicted 0.8 billion RMB/year revenue and operation fee 0.45 billion RMB plus 25% ofenterprise income tax. If to adopt the straight-line depreciation method, the weighted mean capital costis 10%. According to the corresponding equations mentioned above, the project can get its investmentNPV, EVA and accumulative economic value added (MVA) (Table 1).Table 1: NPV and EVA investment decision analysis of agricultural water project (unit: 10 thousand RMB)Time (year)45Initial investment10000080000Operation incomeOperation costDepreciationIncome taxation8000080000800008000045000200003750450004500045000450002000037502000020000200003750375011250375011250312501125031250NOPAT1125011250After-tax cash flow312503125031250NPV18462Capital costEVA100001250100001250100001000010000125012501250MVA18462

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Explain how did it get the NPV, the Economic Value Added (EVA), and the Market Value Added (MVA)

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Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

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Question

Explain how did it get the NPV, the Economic Value Added (EVA), and the Market Value Added (MVA)

Assuming a agricultural water project that has an initial investment of 1 billion RMB and a time frame of
5 years, with a predicted 0.8 billion RMB/year revenue and operation fee 0.45 billion RMB plus 25% of
enterprise income tax. If to adopt the straight-line depreciation method, the weighted mean capital cost
is 10%. According to the corresponding equations mentioned above, the project can get its investment
NPV, EVA and accumulative economic value added (MVA) (Table 1).
Table 1: NPV and EVA investment decision analysis of agricultural water project (unit: 10 thousand RMB)
Time (year)
4
5
Initial investment
100000
80000
Operation income
Operation cost
Depreciation
Income taxation
80000
80000
80000
80000
45000
20000
3750
45000
45000
45000
45000
20000
3750
20000
20000
20000
3750
3750
11250
3750
11250
31250
11250
31250
NOPAT
11250
11250
After-tax cash flow
31250
31250
31250
NPV
18462
Capital cost
EVA
10000
1250
10000
1250
10000
10000
10000
1250
1250
1250
MVA
18462

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