Homework Answers
6.Time zero cash outflows would be:
Purchase price = $1,200,000
Add: Increase in Working Capital = $150,000
Less: After tax sale price of old machine = 200,000*(1-35%) = $130,000
Time zero cash outflow = $1,220,000
i.e. d
7.Annual cash inflow:
Savings in Operating Costs = $300,000
Less: Depreciation = 1,200,000/10 = $120,000
Profit = $180,000
Less: Tax @ 35% = 63,000
Profits after tax = $117,000
Add: Depreciation (non-cash) = $120,000
After tax annual cash flow = $237,000
i.e. b
8.Incremental cash inflow in terminal year:
Recovery of working capital = $150,000
Salvage Value = 0
Cash Inflow = $150,000
Hence, the answer is b
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S130, 51,529 d. SI10,.696 SI10 727 h $183,766 c $252 287 $279,067 Q10....
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