Homework Answers
| A] | LIFE - 5 YEARS: | 0 | 1 | 2 | 3 | 4 | 5 | ||||
| Annual cash flows before tax | $ 13,000.00 | $ 13,000.00 | $ 13,000.00 | $ 13,000.00 | $13,000.00 | ||||||
| Depreciation | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | ||||||
| NOI | $ 6,000.00 | $ 6,000.00 | $ 6,000.00 | $ 6,000.00 | $ 6,000.00 | ` | |||||
| Tax at 40% | $ 2,400.00 | $ 2,400.00 | $ 2,400.00 | $ 2,400.00 | $ 2,400.00 | ` | |||||
| NOPAT | $ 3,600.00 | $ 3,600.00 | $ 3,600.00 | $ 3,600.00 | $ 3,600.00 | ||||||
| Add: Depreciation | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | ||||||
| OCF | $ 10,600.00 | $ 10,600.00 | $ 10,600.00 | $ 10,600.00 | $10,600.00 | ||||||
| Capital expenditure | $ 35,000.00 | ||||||||||
| After tax cash flows | $ -35,000.00 | $ 10,600.00 | $ 10,600.00 | $ 10,600.00 | $ 10,600.00 | $10,600.00 | |||||
| PVIF at 12% | 1 | 0.89286 | 0.79719 | 0.71178 | 0.63552 | 0.56743 | |||||
| PV at 12% | $ -35,000.00 | $ 9,464.29 | $ 8,450.26 | $ 7,544.87 | $ 6,736.49 | $ 6,014.72 | $ 3,210.63 | ||||
| NPV | $ 3,210.63 | ||||||||||
| B] | LIFE - 4 YEARS: | 0 | 1 | 2 | 3 | 4 | |||||
| Annual cash flows before tax | $ 13,000.00 | $ 13,000.00 | $ 13,000.00 | $ 13,000.00 | |||||||
| Depreciation | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | |||||||
| NOI | $ 6,000.00 | $ 6,000.00 | $ 6,000.00 | $ 6,000.00 | |||||||
| Tax at 40% | $ 2,400.00 | $ 2,400.00 | $ 2,400.00 | $ 2,400.00 | |||||||
| NOPAT | $ 3,600.00 | $ 3,600.00 | $ 3,600.00 | $ 3,600.00 | |||||||
| Add: Depreciation | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | |||||||
| OCF | $ 10,600.00 | $ 10,600.00 | $ 10,600.00 | $ 10,600.00 | |||||||
| Capital expenditure | $ 36,000.00 | ||||||||||
| Tax shield on scapping = 7000*40% = | $ 2,800.00 | ||||||||||
| After tax cash flows | $ -36,000.00 | $ 10,600.00 | $ 10,600.00 | $ 10,600.00 | $ 13,400.00 | ||||||
| PVIF at 12% | 1 | 0.89286 | 0.79719 | 0.71178 | 0.63552 | ||||||
| PV at 12% | $ -36,000.00 | $ 9,464.29 | $ 8,450.26 | $ 7,544.87 | $ 8,515.94 | $ -2,024.65 | |||||
| NPV | $ -2,024.65 | ||||||||||
| C] | LIFE - 8 YEARS: | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | |
| Annual cash flows before tax | $ 13,000.00 | $ 13,000.00 | $ 13,000.00 | $ 13,000.00 | $13,000.00 | $ 13,000.00 | $ 13,000.00 | $ 13,000.00 | |||
| Depreciation | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ - | $ - | $ - | |||
| NOI | $ 6,000.00 | $ 6,000.00 | $ 6,000.00 | $ 6,000.00 | $ 6,000.00 | $ 13,000.00 | $ 13,000.00 | $ 13,000.00 | |||
| Tax at 40% | $ 2,400.00 | $ 2,400.00 | $ 2,400.00 | $ 2,400.00 | $ 2,400.00 | $ 5,200.00 | $ 5,200.00 | $ 5,200.00 | |||
| NOPAT | $ 3,600.00 | $ 3,600.00 | $ 3,600.00 | $ 3,600.00 | $ 3,600.00 | $ 7,800.00 | $ 7,800.00 | $ 7,800.00 | |||
| Add: Depreciation | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ 7,000.00 | $ - | $ - | $ - | |||
| OCF | $ 10,600.00 | $ 10,600.00 | $ 10,600.00 | $ 10,600.00 | $10,600.00 | $ 7,800.00 | $ 7,800.00 | $ 7,800.00 | |||
| Capital expenditure | $ 36,000.00 | ||||||||||
| After tax cash flows | $ -36,000.00 | $ 10,600.00 | $ 10,600.00 | $ 10,600.00 | $ 10,600.00 | $10,600.00 | $ 7,800.00 | $ 7,800.00 | $ 7,800.00 | ||
| PVIF at 12% | 1 | 0.89286 | 0.79719 | 0.71178 | 0.63552 | 0.56743 | 0.50663 | 0.45235 | 0.40388 | ||
| PV at 12% | $ -36,000.00 | $ 9,464.29 | $ 8,450.26 | $ 7,544.87 | $ 6,736.49 | $ 6,014.72 | $ 3,951.72 | $ 3,528.32 | $ 3,150.29 | $ 12,840.96 | |
| NPV | $ 12,840.96 | ||||||||||
| D] | Expected NPV = (3210.63-2024.65+12840.96)/3 = | $ 4,675.65 |
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18. Problem 12.18 (Scenario Analysis) eBook Your firm, Agrico Products, is considering a tractor that would...
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This is all the info given. Parts A-D were incorrect.
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