Year 0 Year 1 Year 2 Year 3 Year 4

Capital spending $ (24,000)

Investment
NWC $ (300) $ (350)
Sales $ 12,500 13000 13500 10500
O.C $ (2,700)
Depreciation $ (6,000)
EBIT $ 3,800
Tax 34% $ (1,292)
NI $ 2,508
OCF $ 8,158
Investmnt $ (670,000) Deprciation $ (134,000)
N $ 5
SV(5) $ 50,000
Saving $ 240,000
NWC(0) $ 85,000 NWC(5) $ (85,000)
Tax 35%
OCF tax shield app $ 109,100
0 1 2 3 4 5
NPV $ (585,000)
Innital CF (0) $ (585,000)
Terminal CF
IRR
Mutually exclusive project, unequal lives
EAA app ( EAC,EAB)
Matching cycle method(NPV)
1 2
Cost $ (215,000.00) $ (270,000.00)
n 3 5
Cost(1-3) $ (35,000) $ (44,000.00)
dep $ (71,666.67)
s.v $ 20,000.00
tc 35%
SV(after tax)
r 12%
EAC NPV/PVFA(r,n)

OCF(1-3) $ (2,333.33)
 ICF(0)
Existing machine
B.v 6,000,000
M.v 4,500,000
n 4
DEP 1,500,000
New machine
Cost (18,000,000) OCF(1-4)
n 4
dep (4,500,000) TCF(4)
savings(1-4) 6,700,000 Incremental dep (3,000,000)
nwc (250,000)
tc 0.39
r 0.1
SELL OLD 4,500,000
Tax gain on loss
PURCHASE NEW (18,000,000)
NWC
Finanical break even

SALES-COSTS =(Q*P)-VAR.COST/UNIT *Q-FIX.COST

Q 140,000

VC/UNIT 9

F.C 265,000

COST (1,800,000)

N 5

NWC (130,000)

S.V(5) 150,000

ICF(0) (1,930,000)
OCF=((P-V)*Q-F.C)*(1-Tax)
+dep*tax

TCF(5) 105,000
npv=0

Meaning: npv=O at break-even. >p=14.8 npv>0; vice versa