Year A B

0 -Rp10,000,000 -Rp7,000,000 WACC

1 -Rp3,000,000 -Rp2,000,000 10%
2 -Rp3,000,000 -Rp2,000,000
3 -Rp3,000,000 -Rp2,000,000
4 -Rp3,000,000
5 -Rp3,000,000
NPV -Rp21,372,360 -Rp11,973,704
EAC -Rp5,637,975 -Rp4,814,804
FINANCIAL ACCOUNTING ASSIGNMENT
Chapter 13 – Cash Flow Estimation & Risk Analysis
DIVA TERTIA ALMIRA – NIU 470320

13 - 1
in IDR Mio
Equipment Cost $ 9
∆ NOWC $ 3
Tax 40%

a)
Initial Investment $ 12

b)
No, this is sunk cost not classified as incremental cost

c)
This is an opportunity cost, so it's included in the project not initial investment

13 - 2
in IDR Mio
Sales Revenue $ 10
Operating Cost (Excl. Dep) $ 7
Depreciation $ 2
Interest Expense $ 2

Tax 40%
WACC 10%

a)
Total Revenues $ 10
Operating Cost excluding deprciation $ 7
Depreciation $ 2
Total Costs $ 9
EBIT (Operating Income) $ 1
Taxes on Operating Income $ 0.4
EBIT (1 - T) = After - Tax operating Income $ 0.6
Add back Depreciation $ 2
EBIT (1-T) + Depreciation $ 2.6

b)
Cannibalism is part of externalities so it will change the outcome

Total Revenues $ 10
Operating Cost excluding deprciation $ 7
Depreciation $ 2
Externalities $ 1
Total Costs $ 10
EBIT (Operating Income) $ -
Taxes on Operating Income $ -
EBIT (1 - T) = After - Tax operating Income $ -
Add back Depreciation $ 2
EBIT (1-T) + Depreciation $ 2.0

c)
Total Revenues $ 10
Operating Cost excluding deprciation $ 7
Depreciation $ 2
Total Costs $ 9
EBIT (Operating Income) $ 1
Taxes on Operating Income $ 0.3
EBIT (1 - T) = After - Tax operating Income $ 0.7
Add back Depreciation $ 2
EBIT (1-T) + Depreciation $ 2.7

13 - 3

in IDR Mio
Equipment Cost $ 20
Depreciation $ 16
Salvage Value $ 5
Tax 40%

Equipment Book Value $ 4

Salvage Value (Tax as ordinary Income) $ 5

Equipment Book Value $ 4
Gain on Sale $ 1
Tax on Salvage Value $ 0.40
After - Tax Salvage Value $ 4.6

13 - 4

Year CF New Machine

0 $ -40,000.00 WACC
1 $ 9,000.00 10%
2 $ 9,000.00
3 $ 9,000.00 TAX
4 $ 9,000.00 35%
5 $ 9,000.00
6 $ 9,000.00
7 $ 9,000.00
8 $ 9,000.00
9 $ 9,000.00
10 $ 9,000.00
NPV $ 15,301.10
Yes, Buy new Machine

13 - 5

Year CF System A CF System B

0 $ -20,000.00 $ -12,000.00 WACC
1 $ 6,000.00 $ 6,000.00 10%
2 $ 6,000.00 $ 6,000.00
3 $ 6,000.00 $ 6,000.00
4 $ 6,000.00
5 $ 6,000.00
6 $ 6,000.00

Replacement Chain
Year CF System A CF System B
0 $ -20,000.00 $ -12,000.00
1 $ 6,000.00 $ 6,000.00 WACC
2 $ 6,000.00 $ 6,000.00 10%
3 $ 6,000.00 $ -6,000.00
4 $ 6,000.00 $ 6,000.00
5 $ 6,000.00 $ 6,000.00
6 $ 6,000.00 $ 6,000.00
NPV $ 6,131.56 $ 5,115.79

System A, since it generate higher value

Equivalent Annual Annuity

Year CF System A CF System B
0 $ -20,000.00 $ -12,000.00 WACC
1 $ 6,000.00 $ 6,000.00 10%
2 $ 6,000.00 $ 6,000.00
3 $ 6,000.00 $ 6,000.00
4 $ 6,000.00
5 $ 6,000.00
6 $ 6,000.00
NPV $ 6,131.56 $ 2,921.11
EAA $ 1,407.85 $ 1,174.62

System A, since it generate higher value