Minicase spreadsheet, Ch.

NEW ECONOMY TRANSPORT (A). CASH FLOWS AND PRESENT VALUES

REHAB REHAB PVs REHAB PLUS REHAB PLUS PVs

INVESTMENTS 820,000 -820,000 1,420,000 -1,420,000

MACRS: 0.1429
SALE OF VITAL SPARK (real) 179,000 179,000 179,000 179,000 0.2449
(Taxable gain is 60,000) t=0 t=0 0.1749
0.1249
DEPRECIATION TAX SHIELDS Tax rate x 820,000 201,108 - Tax rate x 1,420,000 348,261 0.0893
7-year schedule, starting in t = 1 x 7-year schedule x 7-year schedule 0.0893
0.0893
REVENUES 910,000 6,491,250 910,000 6,491,250 0.0445
Real, after-tax t = 1.5 - 12.5 t = 1.5 - 12.5
PV = 0.701
OPERATING COSTS -767,650 -5,475,833 663,000 -4,729,340
Real, after-tax t = 1.5 - 12.5 t = 1.5 - 12.5

NPV 575,526 869,172

Discount rate (nominal) 0.11

Expected inflation 0.025
Discount rate (real) 0.0829
Tax rate 0.35

For Principles of Corporate Finance, 12th ed.

R. A. Brealey, S. C. Myers and F. Allen
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