Analyze the effect of inflation on both machines. For simplicity, assume no other cash flows apart from the sales revenues and operating costs are affected. For both chip crushers, the sales revenues are expected to increase by the 5 percent rate beginning after Year 1. However, the annual operating costs are expected to increase by only 3 percent annually.

 

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Tax rate After tax PROP Rehab of facillietes machine cost Depreciation Salvage value Annual scrap revenue annual expenses: variable salaries marketing Interest Purchase Price Facility rehabilitation After tax scrap revenue After tax annual expenses TS on depreciation machine Annual after tax interest expense Salvage value tax on loss/gain on disposal after tax net cash flows payback- balance outstanding Net present value (NPV) Internal rate of return (IRR) Profitability index (PI) Payback period (PP) Equivalent annual value (EAV) LCC 0.3 0.15 0 (400,000.00) LCC 0.4 80000 450000 -50000 -80000 -45000 -48000 42% 1.65 1.93 HCC ($91,609.00) 0.3 0.15 0 (480,000.00) 0.3 48000 600000 HCC $261,541.70 $433,992.58 -150000 -110000 -60000 -48000 41% 1.90 3.31 ($114,676.86) Assumptions LCC 0.3 0.15 0 (400,000.00) 0.4 80000 472500 -51500 -82400 -46350 -49440 LCC Year 0 -$400,000.00 $0.00 HCC 0.3 remains same 0.15 remains same O remains same (480,000.00) remains same 0.3 remains same 48000 remains same 630000 increase by 5% Year 1 -154500 increase by 3% -113300 increase by 3% -61800 increase by 3% -49440 increase by 3% $315,000.00 -$126,175.00 $48,000.00 -$34,608.00 -$400,000.00 $202,217.00 -$400,000.00 -$197,783.00 Year 2 Year 3 Year 4 $330,750.00 $330,750.00 $330,750.00 -$126,175.00 -$126,175.00 -$126,175.00 $42,240.00 $37,171.20 -$34,608.00 -$34,608.00 $32,710.66 -$34,608.00 $80,000.00 $47,963.44 $212,207.00 $207,138.20 $330,641.10 $14,424.00 HCC Year 0 -$480,000.00 $0.00 Year 1 Year 2 Year 3 Year 4 Year 5 -$480,000.00 $197,872.00 $214,984.00 $211,445.92 $208,226.27 -$480,000.00 $282,128.00 -$67,144.00 $144,301.92 Year 6 $420,000.00 $441,000.00 $441,000.00 $441,000.00 $441,000.00 $441,000.0 -$230,720.00 -$230,720.00 -$230,720.00 -$230,720.00 -$230,720.00 -$230,720. $43,200.00 $39,312.00 $35,773.92 $32,554.27 $29,624.38 $26,958.19 -$34,608.00 -$34,608.00 -$34,608.00 -$34,608.00 $55,658.88 $50,649.58 $48,000.00 $67,373.17 $295,563.26 $403,260.9 Tax rate After tax PROP Rehab of facillietes machine cost Depreciation Salvage value Annual scrap revenue annual expenses: variable salaries marketing Interest Purchase Price Facility rehabilitation After tax scrap revenue After tax annual expenses TS on depreciation machine Annual after tax interest expense Salvage value tax on loss/gain on disposal after tax net cash flows payback- balance outstanding Net present value (NPV) Internal rate of return (IRR) Profitability index (PI) Payback period (PP) Equivalent annual value (EAV) LCC 0.3 0.15 0 (400,000.00) LCC 0.4 80000 450000 -50000 -80000 -45000 -48000 42% 1.65 1.93 HCC ($91,609.00) 0.3 0.15 0 (480,000.00) 0.3 48000 600000 HCC $261,541.70 $433,992.58 -150000 -110000 -60000 -48000 41% 1.90 3.31 ($114,676.86) Assumptions LCC 0.3 0.15 0 (400,000.00) 0.4 80000 472500 -51500 -82400 -46350 -49440 LCC Year 0 -$400,000.00 $0.00 HCC 0.3 remains same 0.15 remains same O remains same (480,000.00) remains same 0.3 remains same 48000 remains same 630000 increase by 5% Year 1 -154500 increase by 3% -113300 increase by 3% -61800 increase by 3% -49440 increase by 3% $315,000.00 -$126,175.00 $48,000.00 -$34,608.00 -$400,000.00 $202,217.00 -$400,000.00 -$197,783.00 Year 2 Year 3 Year 4 $330,750.00 $330,750.00 $330,750.00 -$126,175.00 -$126,175.00 -$126,175.00 $42,240.00 $37,171.20 -$34,608.00 -$34,608.00 $32,710.66 -$34,608.00 $80,000.00 $47,963.44 $212,207.00 $207,138.20 $330,641.10 $14,424.00 HCC Year 0 -$480,000.00 $0.00 Year 1 Year 2 Year 3 Year 4 Year 5 -$480,000.00 $197,872.00 $214,984.00 $211,445.92 $208,226.27 -$480,000.00 $282,128.00 -$67,144.00 $144,301.92 Year 6 $420,000.00 $441,000.00 $441,000.00 $441,000.00 $441,000.00 $441,000.0 -$230,720.00 -$230,720.00 -$230,720.00 -$230,720.00 -$230,720.00 -$230,720. $43,200.00 $39,312.00 $35,773.92 $32,554.27 $29,624.38 $26,958.19 -$34,608.00 -$34,608.00 -$34,608.00 -$34,608.00 $55,658.88 $50,649.58 $48,000.00 $67,373.17 $295,563.26 $403,260.9

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Answer 1 Analyze the effect of inflation on both machines The effect of inflation on both machines will depend on the type and amount of inflation In general inflation causes the prices of goods and s... View the full answer