Question

show answer without using Excel

company purchased 10 100. The cars generated and incurred opera per year. The companys 12-40 Fleet Fleet rental car company cars for a total cost of $180,000. Th income of $150,000 per year and in ing expenses of $60,000 per year. T MACRS depreciation and its maro 40% (Note: Per IRS regulations, cars have of 5 years). The 10 cars were sold at the third year for a total of $75,000. Assum of 10% and using NPW, determine if good investment on an after-tax basis by Mukasa Ssemakula, Wayne State Unive arginal tax rates ars have a class lite e sold at the end of the 00. Assuming a MARR termine if this was a x basis. Contributed State University

Answer 1

NPV	$136,260.15

The operating cash flows are

OCF		MACRS 5 year
Year	Cash flows	Depreciation	EBIT	Tax	PAT	OCF
1	90000	-36000	54000	-21600	32400	68400
2	90000	-57600	32400	-12960	19440	77040
3	90000	-34560	55440	-22176	33264	67824
4	90000	-20736	69264	-27705.6	41558.4	62294
5	90000	-20736	69264	-27705.6	41558.4	62294
6	90000	-10368	79632	-31852.8	47779.2	58147

The Net cash flows are

Year	Initial cash flow	OCF	Salvage	Net cash flows
0	-180000			-180000
1		$68,400.00		68400
2		$77,040.00		77040
3		$67,824.00		67824
4		$62,294.40		62294.4
5		$62,294.40		62294.4
6		$58,147.20	45000	103147.2
			NPV	$136,260.15

Formulae

AutoSave oft 2 D Book1 - Excel File Home Insert Draw Page Layout Formulas Data Review View Help Tell me what yo T = = dopo - O ste 3 Calibri B I - 8 - - A À - A - = E ave 3- General $ - % Paste U - . 2 B Conditional Forma Formatting Table Styles Clipboard Font Alignment Number B2 - fx 180000 C D E F G H I J . X A B INPUTS Initial cost 180000 Tax rate 0.4 Selling price 75000 Working capital 0 MARR 0.1 1 2 3 4 OCF Year Initial cash flow O --B2 Tomo =117 =118 =119 =120 =121 =122 Salvage Net cash flows =SUM(D3:F3) =SUM(D4:F4) =SUM(D5:F5) =SUM(D6:F6) =SUM(D7:F7) =SUM(D8:F8) =75000*(1-40%) -SUM(D9:F9) NPV =NPV(B6,64:G10)+G3 14 15 Year 16 1 17 2 18 3 19 4 205 21 6 22 23 Depreciation rate (OCF MACRS 5 year 0.2 Year Cash flows Depreciation EBIT Tax 0.32 = 150000-60000 =$D$3*B16 ESUM(D17:E17) --F17+$B$3 0.192 = 150000-60000 =$D$3*B17 =SUM(D18:E18) =-F18*$B$3 0.1152 = 150000-60000 $D$3*B18 =SUM(D19:E19) --F19*$B$3 0.1152 =150000-60000 =$D$3*B19 =SUM(D20:E20) --F20*$B$3 0.0576 5 = 150000-60000 =$D$3*B20 =SUM(D21:E21) --F21*$B$3 6 - 150000-60000 =$D$3*B21 -SUM(D22:E22) --F22*$B$3 PATOCF =F17+G17 =H17-E17 =F18+G18 =H18-E18 =F19+G19 =H19-E19 =F20+G20 =H20-E20 =F21+G21 =H21-E21 =F22+G22 =H22-E22 Sheet1 Ready