Chapter 8 Case

276 Chapter 8 JEP REALTY SYNDICATORS, INC. Cash Flows Associated with New Real Estate Investment Products* EXHIBIT 8.2 (expanded) Capital Expenditure Decisions Year 0 1 2 3 4 5 New Asset Acquisition. ............. ($100,000) Old Asset Retirement .............. 10,000 Commissions and Fees. .. ........... $120,000 $80,000 $60,000 $50,000 $40,000 Expenditures .. ............ ... (70,000) (40,000) (30,000) (25,000) (25,000) Salvage Value. . . ................. 5,000 Pretax Net Cash Inflow (Outflow)...... ($ 90,000) $ 50,000 $40,000 $30,000 $25,000 $20,000 Depreciation .. .................. (19.000) (19,000) (19,000) (19,000) (19,000) Taxable Income?. . .. .............. $ 31,000 $21,000 $11,000 $ 6,000 $ 1,000 Income Tax Payabl(-_\\h ............... (12,400) (8,400) (4,400) (2,400) (400) Net Cash Inflow (Outflow) .......... ($ 90,000) $ 37,600 $31,600 $25,600 $22,600 $19,600 Present Value Factor at 12 Percent? . ... X 1.00000 X 0.89286 X 0.79719 X 0.71178 X 0.63552 X 0.56743 Present Value of Cash Flows. .. ....... ($ 90,000) $ 33,572 $25,191 $18,222 $14,363 $11,122 Net Present Value................ - $ 12,469 *Discount rate is 12 percent. 3pratax Net Cash Flow Depreciation except Year 0, which has no taxable income for this project. braxable Income X 0.40. CPratax Net Cash Flow - Income Tax Payable. Taken from Table 2 of the Compound Interest and Annuity Tables at the end of the book. Esum of present Values for Years 0-5