13
Time line | 0 | 1 | 2 | 3 | 4 | |||
Cost of new machine | -670000 | |||||||
Initial working capital | -20000 | |||||||
=Initial Investment outlay | -690000 | |||||||
5 years MACR rate | 20.00% | 32.00% | 19.20% | 11.52% | 17.28% | |||
Savings | 245000 | 245000 | 245000 | 245000 | ||||
-Depreciation | =Cost of machine*MACR% | -134000 | -214400 | -128640 | -77184 | 115776 | =Salvage Value | |
-working capital to be maintained | -2500 | -2500 | -2500 | -2500 | ||||
=Pretax cash flows | 108500 | 28100 | 113860 | 165316 | ||||
-taxes | =(Pretax cash flows)*(1-tax) | 83545 | 21637 | 87672.2 | 127293.32 | |||
+Depreciation | 134000 | 214400 | 128640 | 77184 | ||||
=after tax operating cash flow | 217545 | 236037 | 216312.2 | 204477.32 | ||||
reversal of working capital | 30000 | |||||||
+Proceeds from sale of equipment after tax | =selling price* ( 1 -tax rate) | 42350 | ||||||
+Tax shield on salvage book value | =Salvage value * tax rate | 26628.48 | ||||||
=Terminal year after tax cash flows | 98978.48 | |||||||
Total Cash flow for the period | -690000 | 217545 | 236037 | 216312.2 | 303455.8 | |||
Discount factor= | (1+discount rate)^corresponding period | 1 | 1.08 | 1.1664 | 1.259712 | 1.360489 | ||
Discounted CF= | Cashflow/discount factor | -690000 | 201430.5556 | 202363.6831 | 171715.5985 | 223049.07 | ||
NPV= | Sum of discounted CF= | 108558.91 |
14
Time line | 0 | 1 | 2 | 3 | 4 | |||
Cost of new machine | -670000 | |||||||
Initial working capital | -20000 | |||||||
=Initial Investment outlay | -690000 | |||||||
100.00% | ||||||||
Savings | 245000 | 245000 | 245000 | 245000 | ||||
-Depreciation | -670000 | 0 | 0 | 0 | 0 | =Salvage Value | ||
-working capital to be maintained | -2500 | -2500 | -2500 | -2500 | ||||
=Pretax cash flows | -427500 | 242500 | 242500 | 242500 | ||||
-taxes | =(Pretax cash flows)*(1-tax) | -329175 | 186725 | 186725 | 186725 | |||
+Depreciation | 670000 | 0 | 0 | 0 | ||||
=after tax operating cash flow | 340825 | 186725 | 186725 | 186725 | ||||
reversal of working capital | 30000 | |||||||
+Proceeds from sale of equipment after tax | =selling price* ( 1 -tax rate) | 42350 | ||||||
+Tax shield on salvage book value | =Salvage value * tax rate | 0 | ||||||
=Terminal year after tax cash flows | 72350 | |||||||
Total Cash flow for the period | -690000 | 340825 | 186725 | 186725 | 259075 | |||
Discount factor= | (1+discount rate)^corresponding period | 1 | 1.08 | 1.1664 | 1.259712 | 1.360489 | ||
Discounted CF= | Cashflow/discount factor | -690000 | 315578.7037 | 160086.5912 | 148228.3252 | 190427.86 | ||
NPV= | Sum of discounted CF= | 124321.48 |
Q 13/14 are related witount excal 13. Cost-Cutting Proposals Starset Machine Shop is clsidering a 4-year...
Ch. 8 - Problems Problem 8-11 Cost-Cutting Proposals 10 points Blue Line Machine Shop is considering a four year project to improve its production efficiency Buying a new machine press for $490,000 is estimated to result in $200,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $82,000. The press also requires an initial investment in spare parts inventory of $22,000, along...
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