Question

References Mailings Review View Help Grammarly Search A firm is considering the purchase of a new machine at a price of $180,000. The machine falls into the three-year MACRS class. If the new machine is acquired, the firm's investment in net working capital will immediately increase by $20,000 and then remain at that level throughout the life of the project. At the end of 3 years, the new machine can be sold for $40.000. Earnings before depreciation, interest and taxes (EBDIT) are expected to be as follows with respect to the new machine: Year 1: EBDIT = $80,000 Year 2: EBDIT = $100,000 Year 3: EBDIT = $120,000 The firm is subject to a 21 percent tax rate and the firm's discount rate is 12 percent Requirement 1: Calculate the missing data in the table below for each year over the life of this project. (Do not round intermediate calculations. Round your answers to the nearest whole dollar (e.g., 32).) Year Depreciation EBIT Taxes EBDIT $80,000 $100,000 $120.000 2 3 $ $ $ ju Sharon This PC Tal Libraries Network

Answer 1

C423 X fx =180000*0.3333 — L A B C D E F G H M Net Depreciat Net Deprecia Operating working PVIF@ 421 Year EBDIT ion EBIT Tax@21% income tion cash flows capital Investment Annual cash flows 12% Present value 422 0 $(20,000) $ (180,000) $ (200,000) 1.000 $ (200,000.00) 423 1 $ 80,000 $ 59,994 | $ 20,006 $ 4,201$ 15,805 $ 59,994 $ 75,799 $ 75,799 0.893 $ 67,677.45 424 2 $100,000 $ 80,010 $ 19,990$ 4,198 $ 15,792 $ 80,010 $ 95,802 $ 95,802 0.797 $ 76,372.85 425 3 $120,000 $ 26,658 $ 93,342 $ 19,602 $ 73,740 $ 26,658 $ 100,398 $ 20,000 $ 34,401$ 154,799 0.712 $ 110,182.98 426 Net present value $ 54,233.28 427 Asset cost $ 180,000 428 Less: Depreciation charged $ 166,662 429 WDV at the time of sale $ 13,338 430 Sale value of machine $ 40,000 431 Profit/(Loss) on sale $ 26,662 432 Less: Tax @21% $ 5,599 433 After tax salvage value $ 34,401

1) Depreciation Year 1 Depreciation Year 2 Depreciation Year 3 $ $ $ 59,994 80,010 26,658 EBIT Year 1 EBIT Year 2 EBIT Year 3 $ $ $ 20,006 19,990 93,342 Taxes Year 1 Taxes Year 2 Taxes Year 3 $ $ $ 4,201 4,198 19,602 2) Book value (End of Year 3) $ 13,338 3) Taxes After tax salvage value $ $ 5,599 34,401 4) Cash flow Year 0 Cash flow Year 1 Cash flow Year 2 Cash flow Year 3 $ $ $ -$200,000 75,799 95,802 154,799 5) NPV $ 54,233.28

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