The machine will have a salvage value at the end of the project, but we are concerned with the aftertax salvage value, which is:

$\backslash$table$[[$Pretax salvage value$],[$Taxes on sale$],[$Aftertax salvage value$]]$

Now we can calculate the proforma income statement for each year $($Table $6\mathrm{.}1),$ which will be:

$\backslash$table$[[$Operating costs$],[$Earnings before interests and taxes$],[$Net income$]]$

With this, the incremental cash flows each year, NPV for different interest rates, and IRR for the project are $($Table $6\mathrm{.}4)$:

$\backslash$table$[[,$Year $0,$Year $1,$Year $2,$Year $3,$Year $4,$Year $5],[$Earnings before interests and taxes Depreciaton$],[],[$Cash flow from operations,,,,,,$],[$Bowling ball machine,,,,,,$],[$Warehouse$,,,,,,],[$Total cash flow of project,,,,,,$],[$NPV$,,,,,,],[10\%,,,,,,],[15\%,,,,,,],[20\%,,,,,,]]$

A Note about Depreciation

There are actually six MACRS schedules: three$-,$ five$-,$ seven$-,10-,15-,$ and $20-$year schedules. The MACRS schedule is calculated using the depreciation according to the double declining balance method, and switching to straight$-$line depreciation when it is more advantageous. The three$-,$ five$-,$ seven$-,$ and $10-$year schedules use a factor of $2(200\%)$ when calculating the double declining balance depreciation amount, while the $15-$ and $20-$year schedules use a factor of $1\mathrm{.}5(150\%).$ Excel has a function, VDB$,$ which can be used to construct a MACRS table. Below, we have constructed a

$77$ MACRS table with all six schedules.

Baldwin

Investments of unequal lives

Ready

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