Suppose that Mitsubishi Chemical Corporation is planning to buy new equipment to expand its production of a popular solvent. Estimated data are as follows (monetary amounts are in thousands of Japanese yen):
Cash cost of new equipment now ......... ¥400,000
Estimated life in years ................. 10
Terminal salvage value ............... ¥ 50,000
Incremental revenues per year ........... ¥330,000
Incremental expenses per year other than depreciation . ¥165,000
Assume a 60% flat rate for income taxes. The company receives all revenues and pays all expenses other than depreciation in cash. Use a 14% discount rate. Assume that the company uses ordinary straight-line depreciation based on a 10-year recovery period for tax purposes. Also assume that the company depreciates the original cost less the terminal salvage value.
Compute the following:
1. Depreciation expense per year
2. Anticipated net income per year
3. Annual net cash flow
4. Payback period
5. ARR on initial investment
6. NPV

  • CreatedNovember 19, 2014
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