Net Present Value – Tax Impact

Some net present value questions provide a tax rate. When they provide this, we have to calculate the post-tax cash flows from the investment decision. For example, if we receive $200,000 each year for 4 years, we would first find the present value of this annuity (e.g., $650,000). Then after calculating the present value, we would find the post-tax amount of the cash inflow. If the tax rate is 20%, then the post-tax cash inflow is $525,000 ($650,000 X 80%).