Change 2,200,000 to 1,800,000 (new machinery cost) and change 150,000 to 200,000 (salvage value). Change 40 to
Question:
Change 2,200,000 to 1,800,000 (new machinery cost) and change 150,000 to 200,000 (salvage value). Change 40 to 50 (price) and 32 to 30 (costs). These revisions will change most of the numbers in Table 1.
Fill in Xs in Table 1. 427-30. Change in NWC (net working capital) = inventories. Price + freight + installation + change in NWC = net investment outlay = project NCF (net cash flow) at year 0. Salvage value X tax rate = SV (salvage value) tax in year 4. Salvage value – SV tax + recovery of NWC = termination CF (cash flow). Net op (operating) cash flow + termination CF = project NCF.
Press CE/C to clear 1 number on screen of Texas Instrument Ba II Plus Financial calculator. If you ever need to clear CFs (cash flows), etc. in your calculator, press 2nd (to get yellow above key functions) +I- (1 key) (reset) ENTER (set) 2nd CPT (quit).
Fill in Xs. 393-8, 409-10, 427-30. Payback period of S = about 2 years, L = about 3 years. Omit MIRR.
Depreciable basis = price + freight + installation. In year 1, 2,000,000 X 33% (or 0.33) MACRS factor = 660,000 (depreciation expense). 2,000,000 – 660,000 = 1,340,000 end-of-year book value.
Table 1
MACRS Depr. End-of-year
Year Factor Expense Book Value
1 33% $660,000 $1,340,000
2 X X X
3 X X X
4 7 140,000 0
100% 2,000,000
See years 1 and 4 as examples in Table 1. In year 1, 50 X 100,000 = 5,000,000 – 3,000,000 (100,000 X 30) – 660,000 - 20,000 = 1,320,000 – 528,000 = 792,000 + 660,000 = 1,452,000 = project NCF
Cash Flow Statements:
Year 0 Year 1 Year 2 Year 3 Year 4
Unit price $ 50 X X $ 50
Unit sales 100,000 X X 100,000
Revenues 5,000,000 X X 5,000,000
Operating costs 3,000,000 X X 3,000,000
Depreciation 660,000 X X 140,000
Other project effects 20,000 X X 20,000
Before tax income 1,320,000 X X 1,840,000
Taxes 528,000 X X 736,000
Net income 792,000 X X 1,104,000
Plus depreciation 660,000 X X 140,000
Net op cash flow 1,452,000 X X 1,244,000
Salvage value 200,000
SV tax X
Recovery of NWC X
Termination CF X
Project NCF ($-2,100,000) X X X X
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