10-8 (NPV, IRR, MIRR):

Cost of Capital

Cash Outlay
Year
0
1
2
3
4
5
NPV for year 1-5
Initial outlay
NPV

14%
Truck
Pulley
$ (17,100) $ (22,430)

$
$
$
$
$
$

(17,100)
5,100
5,100
5,100
5,100
5,100

$
$
$
$
$
$

(22,430)
7,500
7,500
7,500
7,500
7,500

$
$
$

17,509 $
(17,100) $
409 $

25,748
(22,430)
3,318

IRR
MIRR

15%

20.0%

14.54%

17.19%

10-9 (NPV, IRR, Mutually exclusive)

Cost of capital

Cash outlay
Year
0
1
2
3
4
5
6
NPV for year 1-6
Initial Outlay
NPV
IRR
Electric has higher NPV

12%

Gas
Electric
(17,500) $ (22,000)

$
$
$
$
$
$
$

(17,500)
5,000
5,000
5,000
5,000
5,000
5,000

$
$
$
$
$
$
$

(22,000)
6,290
6,290
6,290
6,290
6,290
6,290

$
$
$

20,557 $
(17,500) $
3,057 $

25,861
(22,000)
3,861

17.97%

18.00%

13.20%

13.23%

11-2 (Operating Cash Flow):

Projected:
Sales
Operating Costs
Depreciation
Interest Expense

$
$
$
$

Tax rate

10,000,000
7,000,000
2,000,000
2,000,000
40.0%

Estimated Taxes:
Sales
Operating Costs
Depreciation
Taxable Income
Estimated Taxes

$
$
$
$
$

10,000,000
(7,000,000)
(2,000,000)
1,000,000
400,000

Sales
Operating Costs
Taxes
Operating Cash Flow

$
$
$
$

10,000,000
(7,000,000)
(400,000)
2,600,000

$
$
$

20,000,000
16,000,000
5,000,000
40.0%

11-3 (Net Slavage Value)

Original cost
Accumulated Depreciation
Expected sales price
Tax rate
Expected Sales Price
Tax basis:
Original price
Accumulated Depreciation
Tax basis

$ 5,000,000

$
$

20,000,000
(16,000,000)
$ 4,000,000
$ 1,000,000
$ 400,000

Taxable gain
Tax
Expected Sales Price
Tax on gain

$ 5,000,000
$ (400,000)
$ 4,600,000

Net Salvage Value

11-7 (New Project Analysis)

Purchase price
Modification cost
Resale

$
$
$

70,000
15,000
30,000

Expected life
Required inventory increase
Annual savings
Marginal tax rate
Cost of Capital
a:
Purchase price
Modification cost
Required Inventory Increase
Net cost

$
$
$

30,000
4,000
25,000
40.0%
10.0%

$
$
$
$

70,000
15,000
4,000
89,000

b:
Cost reduction
Depreciation percentage
Incremental depreciation
Incremental taxable income
incremental taxes

$
$
$
$

Year 1
25,000
33.0%
28,050
(3,050)
(1,220)

Cost reduction
$
Incremental taxes
$
Incremental after-tax cash flow$

Year 2
25,000
45.0%
$
38,250
$ (13,250)
$
(5,300)
$

25,000 $
(1,220) $
26,220 $

Year 3
25,000
15.0%
$
12,750 $
$
12,250
$
4,900
$

25,000 $
(5,300) $
30,300 $

79,050

25,000
4,900
20,100

c:
Expected Resale value
Purchase price
Modification cost
Total acquisition cost
Depreciation
Tax basis
Taxable gain
Tax rate
Tax on resale

$
$
$
$

Purchase Price
Modification cost
Required inventory increase
Incremental after-tax
operating cash flow

30,000

$
$
$

5,950
24,050
40.0%
9,620

$
$
$
$

30,000
(9,620)
4,000
24,380

70,000
15,000
85,000
79,050

Expected Resale
Expected tax on resale
Reduction in required inventory
Nonoperating cash flow
d:
Year

0
$
$
$

(70,000)
(15,000)
(4,000)
$

26,220

30,300

20,100

Net Salvage value

Net Cash Flow
NPV:
Year 0
Year 1-3
NPV
IRR

(89,000) $

(89,000)
$82,296
(6,704)

6.0%

26,220

30,300

$
$

24,380
44,480