You may be tempted to add in a new charge for depreciation but that is not the correct answer. In terms of finance, we pay the $100,000 in period 0, so that is when we add the NCS charge. That being said, there is a difference when we include depreciation. Because we shift the accounting charges over the 5 years, in terms of taxes our profits look $20,000 less so we don’t get taxed on 20,000. This is the tax shield we covered before. Let’s create a tax shield function, and add its value to the operating cashflow.

def taxShield(initial,salvage,years,taxRate,r):
    dep = (initial-salvage)/years
    taxShield = dep*taxRate
    return [Cashflow(taxShield,t,r) for t in range(1,years+1)]

We get the tax shield cash flow for each year by using list comprehension. You could have just as easily created a loop and added a cashflow for each year. The new NPV is:

Solution 4

print(NPV(NCS)+NPV2(OCF,.2)+NPV(taxShield(100000,0,5,.2,.05)))