Hello,
I am having trouble calculating this with the salvage value.
Homework Answers
Techron I:
Depreciation for 3 years = 231,000 /3 =77000
Annual cashflow= - 60,000 * (1-35%) + 77000 *35% = -12050
After tax salvage value = 37000 * ( 1-35%) = 24050
| Year | Cash flow | PV Factor | Discounted value |
| 0 | -231000 | 1 | -231000 |
| 1 | -12050 | 0.917431193 | -11055.04587 |
| 2 | -12050 | 0.841679993 | -10142.24392 |
| 3 | -12050 | 0.77218348 | -9304.810935 |
| 3 | 24050 | 0.77218348 | 18571.0127 |
| NPV | -242931.088 |
EAC = NPV / PVAF ( 9%,3years) = -242931.088 / 2.53129 = 95971.08
Techron II:
Depreciation for 3 years = 405,000 /5 =81000
Annual cashflow= - 33,000 * (1-35%) + 81000 *35% = 6900
After tax salvage value = 37000 * ( 1-35%) = 24050
| Year | Cash flow | PV Factor | Discounted value |
| 0 | -405000 | 1 | -405000 |
| 1 | 6900 | 0.917431193 | 6330.275229 |
| 2 | 6900 | 0.841679993 | 5807.591954 |
| 3 | 6900 | 0.77218348 | 5328.066012 |
| 4 | 6900 | 0.708425211 | 4888.133956 |
| 5 | 6900 | 0.649931386 | 4484.526565 |
| 5 | 24050 | 0.649931386 | 15630.84984 |
| NPV | -362530.5564 |
EAC = NPV / PVAF ( 9%,5years) = - 362530.5564/ 3.88965 = -93203.87
Techron II must be chosen since the EAC is lower.
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Hello,
I am having trouble calculating this with the salvage
value.
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