a.) Annual depreciation is calculate as: 310000/8 = 38750
For next six year it is calculated as follow:(All values are in $)
Year |
Depreciation base | Percentage Depreciation | Annual Depreciation |
1 | 310000 | 12.5% | 38750 |
2 | 271250 | 14.28% | 38750 |
3 | 232500 | 16.67% | 38750 |
4 | 193750 | 20% | 38750 |
5 | 155000 | 25% | 38750 |
6 | 116250 | 33.33% | 38750 |
Note: 1. Depreciation base for 2nd year is calculated (310000-38750=271250) and vice versa.
2. Percentage Depreciation is calculated as: (38750/310000=12.5%) for 1st year and vice versa.
b.) The annual cash flow for each year are as follow
Year | Calculation | Cash flow |
1 | 206000-51500 | 154500 |
2 | 174000-43500 | 130500 |
3 | 144000-36000 | 108000 |
4 | 129000-32250 | 96750 |
5 | 102000-25500 | 76500 |
6 | 92000-23000+130000 | 199000 |
Formula for calculating cash flow: EBDAT-Tax income (206000-(206000*0.25))
c.) Weighted average cost of capital:(0.50*0.17+0.10*0.1240+0.083*0.40*(1-0.25)) = 12.23%
d 1.) Net present value:
Year | Cash flow | Working capital | PV at 12.23% | PV |
1 | 154500 | 0.891 | 137659.5 | |
2 | 130500 | 0.793 | 103486.5 | |
3 | 108000 | 0.707 | 76356 | |
4 | 96750 | 0.630 | 60952.5 | |
5 | 76500 | 0.561 | 42916.5 | |
6 | 92000 | 130000 | 0.500 | 99500 |
Total Present Value | 520871 |
Net present value: 520871-310000 = $210871.
d 2 .) Yes. DataPoint should purchase the new equipment.
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