Ch 12 Problem #9: You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $60,000. The truck falls into the MACRS (Links to an external site.) 3-year class, and it will be sold after three years for $20,000. The use of the truck will require an increase in NWC (spare parts inventory) of $2,000. The truck will have no effect on revenues, but it is expected to save the firm $20,000 per year in before-tax operating costs, mainly labor. The firms marginal tax rate is 40 percent, an opportunity cost of capital of 8 percent. What will the cash flows for this project be?

Ch 12.9 Complete the Ch 12 Problem #9 Excel worksheet and answer the following questions. Q.3 What will the cash flows for this project be? Q.4 According to the Management Report, should KADS go forward with the project? Explain your answers in detail using the Capital Budgeting key topic and tools in Ch 13 and Ch 13 from the M: Finance textbook readings.

NPV - Investment Analysis Initial Investment Basis $0 Cost of Equipment Cost of Installation Discount Rate Reinvestment Rate (for MIRR) Tax Rate Working Capital Commitment Sell Equipment at End of Project Management Summary NPV at 0% $0 IRR #NUM! MIRR #DIV/0! P.I. #DIV/0! Payback 0.00 Disc Payback 0.00 First year change in revenue Revenues increase/ decrease each year at: First year change in expenses Expenses increase/ decrease each year at: 1st-Yr Cannibalization of Other Revenues Annual Cannibalization Increase/Decrease Incremental Income Statement year change in revenues cannibalization ch. expenses MACRS ch. depreciation 0 1 2 3 4 5 $0 $0 $0 $0 $0 $0 $0 $0 $0 Book Value $0 $0 $0 EBIT Taxes $0 $0 $0 $0 $0 $0 $0 $0 $0 ch. Net Income Convert change in net income into change in cash flow Net Income add back depreciation OCF of New Equipment $0 $ $0 $0 $ $0 $0 $O $0 Cash flow from sale of equipment is calculated net of tax. Initial Investment Basis Working Capital Commitment $0 $0 $0 ATCF = BV + [(MV-BV) * (1-Tc)] Sell Equipment at End of Proje Net change in CF $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Net change in CF Cumulative CF Payback Discounted Net CF Disc Cumulative CF Disc Payback $0 $0 $0 $0 $0 $0 $0 $0 MACRS 3-year year 1 33.33% year 1 20.00% year 1 14.29% MACRS 5-year year 2 44.45% year 2 32.00% year 2 24.49% year 3 14.81% year 3 19.20% year 3 17.49% year 4 7.41% year 4 11.52% year 5 11.52% year 5 MACRS 7-year year 6 5.76% year 6 8.92% year 4 year 7 8.93% year 8 4.46% 12.49% 8.93% NPV - Investment Analysis Initial Investment Basis $0 Cost of Equipment Cost of Installation Discount Rate Reinvestment Rate (for MIRR) Tax Rate Working Capital Commitment Sell Equipment at End of Project Management Summary NPV at 0% $0 IRR #NUM! MIRR #DIV/0! P.I. #DIV/0! Payback 0.00 Disc Payback 0.00 First year change in revenue Revenues increase/ decrease each year at: First year change in expenses Expenses increase/ decrease each year at: 1st-Yr Cannibalization of Other Revenues Annual Cannibalization Increase/Decrease Incremental Income Statement year change in revenues cannibalization ch. expenses MACRS ch. depreciation 0 1 2 3 4 5 $0 $0 $0 $0 $0 $0 $0 $0 $0 Book Value $0 $0 $0 EBIT Taxes $0 $0 $0 $0 $0 $0 $0 $0 $0 ch. Net Income Convert change in net income into change in cash flow Net Income add back depreciation OCF of New Equipment $0 $ $0 $0 $ $0 $0 $O $0 Cash flow from sale of equipment is calculated net of tax. Initial Investment Basis Working Capital Commitment $0 $0 $0 ATCF = BV + [(MV-BV) * (1-Tc)] Sell Equipment at End of Proje Net change in CF $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Net change in CF Cumulative CF Payback Discounted Net CF Disc Cumulative CF Disc Payback $0 $0 $0 $0 $0 $0 $0 $0 MACRS 3-year year 1 33.33% year 1 20.00% year 1 14.29% MACRS 5-year year 2 44.45% year 2 32.00% year 2 24.49% year 3 14.81% year 3 19.20% year 3 17.49% year 4 7.41% year 4 11.52% year 5 11.52% year 5 MACRS 7-year year 6 5.76% year 6 8.92% year 4 year 7 8.93% year 8 4.46% 12.49% 8.93%