Question

im unsure how to fill out this table. please help!

AutoSave H. FINI FOF Assignment Search Michael Nikolovski File Home Insert Drow Page Layout Formulas Data Review View Help Shape Format X lb- Calibri (Body Insert waste BTUDS -A A 25 Wrap Text - A - EEE Merge & Center Alignment 27 $ - % *88-28 Conditional Formatas Cell Formatting Table Styles Format Sonte Filters pboard Font Number Cells ectangle 1 - f PART 2 - PROJECT EVALUATION 1 2 3 4 WACC: 7.65% Year Opening Book Value less Depreciation Closing Book Value Tax Rate: 30.0% Revenue and expenses Round off all dollar values below to the nearest whole number. All expenses and cash outflows must be negative numbers. (Read the Important Note to the right.) 1 2 3 4 Student No. Balance Sheet Online Data Credit Spreads Project Info Part Part 2

Answer 1

Answer :

Table 1 related to Book Value and Depreciation

We need to calculated WDV rate of depreciation for the equipment, following information is provided in question:

Equipment Cost; $740

Estimated Life: 4 Years

Salvage Value: $150

For calculating depreciation rate of WDV we have follwing formula:

Rate of Depreciation: 1 - ((salvage value / cost) power (1 / life))

So WDV rate of depreciation is = 1- ((150/740)power (1/4)

Rate of Depreciation= 33% (approx)

Therefore Table 1 is as follows:

Year	1	2	3	4
Opening Book Value	$        740	$        496	$        332	$        223
Less: Depreciation @33% of opening book value	$        244	$        164	$        110	$          73
Closing Book Value	$        496	$        332	$        223	$        150

Table 2 for Revenue and Expenses:

Year	1	2	3	4
Revenue
Increase Efficiency (reduced by 8% every year)	$        870	$        800	$        736	$        677
Operating equipement cost	-220	-220	-220	-220
Maintenance Cost (increased by $20 every year)	-110	-130	-150	-170
Rental of Builiding used (Opportunity cost)	-110	-110	-110	-110
Feasibility study cost	-300	0	0	0
Depreciation	-244	-164	-110	-73
	$      -114	$        177	$        147	$        104
Tax rate @30%	$         -34*	$          53	$          44	$          31
Net income after tax	$         -80	$        124	$        103	$          73
Add: Depreciation	$        244	$        164	$        110	$          73
Cash Flow after tax	$        164	$        287	$        212	$        146
Additional Working Capital and Salvage Value	$      -110			$        260
Net Cash flow	$          54	$        287	$        212	$        406
Present value factor for 7.65%	0.93	0.86	0.80	0.74
Present value of net cash flow	$          50	$        248	$        170	$        302

* we assume that company is having other profitable project and loss of first year from the proposed project can be setoff against the profit of other business which ultimately reduce tax liability of the company.

Total present value of net cash flow upto 3 years is $469 which is less than equipment cost $740, in this case payback period is more than 3 years and as per the policy of the management it accepts only those project which is having maximum payback period of 3 years i.e. cash outlflow in year 0 will be recovered in maximum 3 years, since the proposed project is taking more than 3 years to payback original cost of the company, the company is NOT going to invest in this project besides having positive NPV.