Overhaul Costs $$820,000\mathrm{.}00$ Outlays could be written off immediialtely for tax purposes $($the expenses incurred could be fully deducted from the taxable income in the current tax year$)$

Post Overhaul costs $$1,181,000\mathrm{.}00$

Inflation Rate $2\mathrm{.}50\%$ per year

Net Book Value of Vessel $$140,000\mathrm{.}00$

Salvage Value $$200,000\mathrm{.}00$

Value of New Engine $$600,000\mathrm{.}00100\%$ depreciation $-$ is eligible for a tax incentive that allows the company to deduct the full cost of the asset in the year it is placed in service, rather than depreciating it over several years.

After Engine Costs $$1,020,000\mathrm{.}00$

Required Return $11\%$

Tax Rate $21\%$

Yearly revenue $$1,400,000\mathrm{.}00$

Taxable Proceeds from Sale $$60,000\mathrm{.}00$

OCF w$/$o Engine & Control System

Operating Cashflow Yr $0$ Yr $1$ Yr $2$ Yr $3$ Yr $4$ Yr $5$ Yr $6$ Yr $7$ Yr $8$ Yr $9$ Yr $10$ Yr $11$ Yr $12$

Revenues $$0\mathrm{.}00$ $$1,400,000\mathrm{.}00$ $$1,435,000\mathrm{.}00$ $$1,470,875\mathrm{.}00$ $$1,507,646\mathrm{.}88$ $$1,545,338\mathrm{.}05$ $$1,583,971\mathrm{.}50$ $$1,623,570\mathrm{.}79$ $$1,664,160\mathrm{.}06$ $$1,705,764\mathrm{.}06$ $$1,748,408\mathrm{.}16$ $$1,792,118\mathrm{.}36$ $$0\mathrm{.}00$

Gain on Disposal $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$200,000\mathrm{.}00$

Less Cash Expenses $-$$$820,000\mathrm{.}00-$$$1,210,525\mathrm{.}00-$$$1,240,788\mathrm{.}13-$$$1,271,807\mathrm{.}83-$$$1,303,603\mathrm{.}02-$$$1,336,193\mathrm{.}10-$$$1,369,597\mathrm{.}93-$$$1,403,837\mathrm{.}88-$$$1,438,933\mathrm{.}82-$$$1,474,907\mathrm{.}17-$$$1,511,779\mathrm{.}85-$$$1,549,574\mathrm{.}34$ $$0\mathrm{.}00$

Less tax on Gain of Disposal $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00-$$$12,600\mathrm{.}00$

Less Tax $$172,200\mathrm{.}00-$$$39,789\mathrm{.}75-$$$40,784\mathrm{.}49-$$$41,804\mathrm{.}11-$$$42,849\mathrm{.}21-$$$43,920\mathrm{.}44-$$$45,018\mathrm{.}45-$$$46,143\mathrm{.}91-$$$47,297\mathrm{.}51-$$$48,479\mathrm{.}95-$$$49,691\mathrm{.}95-$$$50,934\mathrm{.}24$ $$0\mathrm{.}00$

$-$$$647,800\mathrm{.}00$ $$149,685\mathrm{.}25$ $$153,427\mathrm{.}38$ $$157,263\mathrm{.}07$ $$161,194\mathrm{.}64$ $$165,224\mathrm{.}51$ $$169,355\mathrm{.}12$ $$173,589\mathrm{.}00$ $$177,928\mathrm{.}72$ $$182,376\mathrm{.}94$ $$186,936\mathrm{.}37$ $$191,609\mathrm{.}78$ $$187,400\mathrm{.}00$

Present Value of Future Cashflows $$1,081,458\mathrm{.}35$ $$134,851\mathrm{.}58$ $$124,525\mathrm{.}10$ $$114,989\mathrm{.}40$ $$106,183\mathrm{.}90$ $$98,052\mathrm{.}70$ $$90,544\mathrm{.}16$ $$83,610\mathrm{.}60$ $$77,207\mathrm{.}99$ $$71,295\mathrm{.}66$ $$65,836\mathrm{.}09$ $$60,794\mathrm{.}58$ $$53,566\mathrm{.}57$

NPV $$433,658\mathrm{.}35$

IRR $23\%$

OCF w Engine & Control System

Operating Cashflow Yr $0$ Yr $1$ Yr $2$ Yr $3$ Yr $4$ Yr $5$ Yr $6$ Yr $7$ Yr $8$ Yr $9$ Yr $10$ Yr $11$ Yr $12$

Revenues $$0\mathrm{.}00$ $$1,400,000\mathrm{.}00$ $$1,435,000\mathrm{.}00$ $$1,470,875\mathrm{.}00$ $$1,507,646\mathrm{.}88$ $$1,545,338\mathrm{.}05$ $$1,583,971\mathrm{.}50$ $$1,623,570\mathrm{.}79$ $$1,664,160\mathrm{.}06$ $$1,705,764\mathrm{.}06$ $$1,748,408\mathrm{.}16$ $$1,792,118\mathrm{.}36$ $$0\mathrm{.}00$

Gain on Disposal $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$200,000\mathrm{.}00$

Less Cash Expenses $-$$$1,420,000\mathrm{.}00-$$$1,045,500\mathrm{.}00-$$$1,071,637\mathrm{.}50-$$$1,098,428\mathrm{.}44-$$$1,125,889\mathrm{.}15-$$$1,154,036\mathrm{.}38-$$$1,182,887\mathrm{.}29-$$$1,212,459\mathrm{.}47-$$$1,242,770\mathrm{.}96-$$$1,273,840\mathrm{.}23-$$$1,305,686\mathrm{.}24-$$$1,338,328\mathrm{.}39$ $$0\mathrm{.}00$

Less tax on Gain of Disposal $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00-$$$12,600\mathrm{.}00$

Less Tax $$298,200\mathrm{.}00-$$$74,445\mathrm{.}00-$$