New Machine

Initial Outlays 1010000 855k for machine, 155k for plant modification and 5k for shipping
Labor Cost 38169.6 8 hours, 2 shifts, 210 days, 11,36 per hour
Maintenance and Power Cost 86350 maintenance outsource @59500 and electrical cost @26850
Labor savings 5200
Depretiation expense 126250 assume straight line method with no salvage value

Tax Rate 43%

Old Machine
can be sold now for 130000
Labor cost 295545.6 12 operators, 2 shifts, 210 days, 7,33 per hour
Maintenance 39564 3 workers, 8 hours, 1 shift, 7,85 per hour, 210 days
Power Cost 16300 supplies @4000 and power @12.300
Depreciation expense 47520

Discount rate
hurdle rate 14% cannot be used because it has not been reviewed since 1984, will not be relevant anymore
18% ROE is cannot be used as rate of return because its ROE
CAPM is more appropiate to be used

Beta 1.25 weight of equity 67%

Risk Free Rate 5.30%
Risk Premium 6%
Cost of Equity 12.80%

Cost of debt will be calculated also

Cost of debt before tax 6.80% weight of debt 33%
Tax rate 43%
Cost of debt after tax 3.88%

WACC 9.86%
cation and 5k for shipping

ectrical cost @26850

be relevant anymore
Sale of Old Machines
Original Cost 415807
Accumulated Depreciation 130682
Book Value (Now) 285125
Market Value 130000
Gains -155125
Tax -66703.75
Net 196703.8

Purchase of New Machines

Price 1010000
Sale 196703.8
Net Investment 813296.3
Assume that semi-automated machines can be used for 2 extended years (because from calculation, it has 6 years e
New Machine Cashflow 0 1 2 3 4 5
Labor Cost -38169.6 -38169.6 -38169.6 -38169.6 -38169.6
Maintenance and Electric -86350 -86350 -86350 -86350 -86350
Labor Saving 5200 5200 5200 5200 5200
Depreciation -126250 -126250 -126250 -126250 -126250
Cost before tax -245569.6 -245569.6 -245569.6 -245569.6 -245569.6
Taxes 105594.9 105594.9 105594.9 105594.9 105594.9
Cost After Tax -139975 -139975 -139975 -139975 -139975
Added Depretiation -13724.67 -13724.67 -13724.67 -13724.67 -13724.67
Capital Expenditure -813296.25
Net Cashflow -813296.25 -13724.67 -13724.67 -13724.67 -13724.67 -13724.67

Old Machine Cashflow 0 1 2 3 4 5

Labor Cost -295545.6 -295545.6 -295545.6 -295545.6 -295545.6
Maintenance -39564 -39564 -39564 -39564 -39564
Maintenance Supplies and Power -16300 -16300 -16300 -16300 -16300
Depreciation -47520.83 -47520.83 -47520.83 -47520.83 -47520.83
Cost Before Tax -398930 -398930 -398930 -398930 -398930
Taxes 171540.1 171540.1 171540.1 171540.1 171540.1
Cost After Tax -227390 -227390 -227390 -227390 -227390
Added Depreciation -179870 -179870 -179870 -179870 -179870
Net Cashflow 0 -179870 -179870 -179870 -179870 -179870

Incremental Cashflow -813296.25 166144.8 166144.8 166144.8 166144.8 166144.8

NPV 97986.59
IRR 13.01%
m calculation, it has 6 years economic life)
6 7 8
-38169.6 -38169.6 -38169.6
-86350 -86350 -86350
5200 5200 5200
-126250 -126250 -126250
-245569.6 -245569.6 -245569.6
105594.9 105594.9 105594.9
-139975 -139975 -139975
-13724.67 -13724.67 -13724.67

-13724.67 -13724.67 -13724.67

6 7 8
-295545.6 -295545.6 -295545.6
-39564 -39564 -39564
-16300 -16300 -16300
-47520.83 0 0
-398930 -351409.6 -351409.6
171540.1 151106.1 151106.1
-227390 -200303 -200303
-179870 -200303 -200303
-179870 -200303 -200303

166144.8 186578.8 186578.8