Scribd
Upload
92 views5 pages

p11 29

This document presents a financial analysis comparing the costs and benefits of acquiring a new machine versus keeping an existing machine. It calculates the initial investment, depreciation expenses, tax implications, operating cash flows, and net present value of each option over a 6 year period. The analysis finds that acquiring the new machine has a positive net present value of $100,900.39 and an internal rate of return of 12.24%, making it the recommended option over keeping the existing machine.

Uploaded by

Saeful Aziz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
92 views5 pages

p11 29

This document presents a financial analysis comparing the costs and benefits of acquiring a new machine versus keeping an existing machine. It calculates the initial investment, depreciation expenses, tax implications, operating cash flows, and net present value of each option over a 6 year period. The analysis finds that acquiring the new machine has a positive net present value of $100,900.39 and an internal rate of return of 12.24%, making it the recommended option over keeping the existing machine.

Uploaded by

Saeful Aziz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 5

Chapter 10-11

Problem 11.29

Page 1
Chapter 10-11

Installed cost of proposed machine Book value of new machine


Acquisition cost 1,200,000 year cost macrs
Installation cost 150,000 1 1,350,000 20.00%
Total 1,350,000 2 1,350,000 32.00%
3 1,350,000 19.00%
After tax proceed from existing machine 4 1,350,000 12.00%
Proceed from sale of existing machine 185,000 5 1,350,000 12.00%
Tax on sale of existing machine -79,600 6 1,350,000 5.00%
Total after tax proceed: existing 264,600 100.00%

Change in working capital 25,000 Book value of existing machine


year cost macrs
Initial investment 1,110,400 1 800,000 20.00%
2 800,000 32.00%
3 800,000 19.00%
4 800,000 12.00%
5 800,000 12.00%
6 800,000 5.00%

0 1 2 3 4

Investment -1,110,400

Operating cash flow new machine


Cost efficiency 350,000 350,000 350,000 350,000
Depreciation -270,000 -432,000 -256,500 -162,000
EBT 80,000 -82,000 93,500 188,000
Tax -32,000 32,800 -37,400 -75,200
EAT 48,000 -49,200 56,100 112,800
Add back depreciation 270,000 432,000 256,500 162,000
Operating cash flow new machine 318,000 382,800 312,600 274,800

Sales of new machine


Tax savings
Net working capita
Operating cash flow new machine -1,110,400 318,000 382,800 312,600 274,800

Operating cash flow existing machine


Depreciation -152,000 -96,000 -96,000 -40,000
EBT -152,000 -96,000 -96,000 -40,000

Page 2
Chapter 10-11
Tax 60,800 38,400 38,400 16,000
EAT -91,200 -57,600 -57,600 -24,000
Add back depreciation 152,000 96,000 96,000 40,000
Operating cash flow existing machine 60,800 38,400 38,400 16,000

Variation of operating cash flow -1,110,400 257,200 344,400 274,200 258,800

rate 9.00%

NPV $100,900.39
IRR 12.24%

Page 3
Chapter 10-11

depreciation
book value at end
270,000 1,080,000
432,000 648,000
256,500 391,500
162,000 229,500
162,000 67,500
67,500 0
1,350,000

depreciation
book value at end
160,000 640,000
256,000 384,000
152,000 232,000
96,000 136,000
96,000 40,000
40,000 0

5 6

350,000 0
-162,000 -67,500
188,000 -67,500
-75,200 27,000
112,800 -40,500
162,000 67,500
274,800 27,000

200,000
-53,000
25,000
446,800 27,000

0 0
0 0

Page 4
Chapter 10-11
0 0
0 0
0 0
0 0

446,800 27,000

Page 5

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy