Needs to be in EXCEL
A new engineer who just was hired by Machine Excellence is pushing for a brand new laser machining center. He insists that it is a money maker from the first day. He did not figure the deprecation and the after taxes cash flow (CFAT). Give this rookie engineer a little intelligent guidance here on the CFAT for a ROR analysis of the new laser equipment. Here are the figures for the production machining equipment for making detailed laser signs and complex shapes. Calculate the CFAT and ROR for the end of 6 years. Answer the question: "Is the investment economically viable"?
Depr method: MACRS GDS
Class life: 5 Years
Depr recapture: Taxed as TI
First cost: $550,000
Gross Income:$250,000
Expenses: $80,000
Salvage: 0 in year 6
Effective Tax Rate: 45%
After-tax MARR: 10% per year compounded semiannually
Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
1.First cost | -550000 | ||||||
2.Gross Income | 250000 | 250000 | 250000 | 250000 | 250000 | 250000 | |
3.Expenses | -80000 | -80000 | -80000 | -80000 | -80000 | -80000 | |
4.MACRS Depreciation | -110000 | -176000 | -105600 | -63360 | -63360 | -31680 | |
5.EBT(2+3+4) | 60000 | -6000 | 64400 | 106640 | 106640 | 138320 | |
6.Tax at 45%(5*45%) | -27000 | 2700 | -28980 | -47988 | -47988 | -62244 | |
7.EAT(5-6) | 33000 | -3300 | 35420 | 58652 | 58652 | 76076 | |
8. Add back:depn.(Row 4) | 110000 | 176000 | 105600 | 63360 | 63360 | 31680 | |
9.OCFs(7+8) | 143000 | 172700 | 141020 | 122012 | 122012 | 107756 | |
10.CFAT---FCFs(1+9) | -550000 | 143000 | 172700 | 141020 | 122012 | 122012 | 107756 |
11.PV F at MARR 10.25%p.a.(1/1.1025^Yr.n) | 1 | 0.90703 | 0.82270 | 0.74622 | 0.67684 | 0.61391 | 0.55684 |
12.PV at 10.25%(10*11) | -550000 | 129705.2 | 142080.7 | 105231.3 | 82582.52 | 74904.78 | 60002.57 |
13.NPV(sum of row 12) | 44507.11 | ||||||
14.IRR/ROR (Of FCF row 10) | 13.16% | ||||||
MARR= 10% p.a. compounded semi-annually is | |||||||
Interest compounded twice in a year, so | |||||||
(1+10%/2)^2-1= | |||||||
10.25% | |||||||
p.a. | |||||||
As salvage is $ 0, | |||||||
there is no depreciation recapture | |||||||
ANSWERS: | |||||||
10.CFAT---FCFs(1+9) | -550000 | 143000 | 172700 | 141020 | 122012 | 122012 | 107756 |
13.NPV(sum of row 12) | 44507.11 | ||||||
14.IRR/ROR (Of FCF row 10) | 13.16% |
Needs to be in EXCEL A new engineer who just was hired by Machine Excellence is...