Year 0 1 2 3 4

MACRS Depreciation 33.33% 44.45% 14.81% 7.41%

1. Initial investment
Earth mover price -50,000
Modification cost -10,000
Total capital spending -60,000

2. Operating cash flow

Cost savings 30,000 30,000 30,000
Depreciation -19,998 -26,670 -8,886
EBIT 10,002 3,330 21,114
Taxes -4,001 -1,332 -8,446
Net income 6,001 1,998 12,668
OCF 25,999 28,668 21,554

3. Working capital
CF of change in WC -2,000 0 0 2,000

4. Salvage value
Earth mover salvage 20,000
ATSV from selling the earth mover 13,778

5. Project CFs
OCF 25,999 28,668 21,554
CF of change in WC -2,000 0 0 2,000
Capital spending -60,000
ATSV 13,778
Project CFs -62,000 25,999 28,668 37,333

6. Decision criteria
NPV (at 10% discount rate) $13,376.88
4446
 Year 0 1 2 3 4
MACRS Depreciation 14.29% 24.49% 17.49% 12.49%
1. Initial investment
Manufacturing equipment -1,250,000
Total capital spending -1,250,000

2. Operating cash flow

Sales revenue 6,000,000 6,000,000 6,000,000 6,000,000
Variable cost -2,400,000 -2,400,000 -2,400,000 -2,400,000
Fixed cost -450,000 -450,000 -450,000 -450,000
Depreciation -178,625 -306,125 -218,625 -156,125
EBIT 2,971,375 2,843,875 2,931,375 2,993,875
Taxes 1,010,268 966,918 996,668 1,017,918
Net income 1,961,108 1,876,958 1,934,708 1,975,958
OCF 2,139,733 2,183,083 2,153,333 2,132,083

3. Working capital
WC requirement 1,150,000 1,500,000 1,500,000 1,500,000 0
CF of change in WC -1,150,000 -350,000 0 0 1,500,000

4. Salvage value
Manufacturing equipment salvage 625,000
ATSV from selling the equipment 545,270

5. Project CFs
OCF 2,139,733 2,183,083 2,153,333 2,132,083
CF of change in WC -1,150,000 -350,000 0 0 1,500,000
Capital spending -1,250,000
ATSV 545,270
Project CFs -2,400,000 1,789,733 2,183,083 2,153,333 4,177,353

6. Decision criteria
NPV (at 28% discount rate) $2,913,650.35
 5 6 7 8
8.93% 8.92% 8.93% 4.46%
 Year 0 1 2 3 4
MACRS Depreciation 33.33% 44.45% 14.81% 7.41%
1. Initial investment
Machinery price -200,000
Shipping charges -10,000
Installation cost -30,000
Total capital spending -240,000

2. Operating cash flow

Sales revenue 250,000 257,500 265,225 273,182
Cost -125,000 -128,750 -132,613 -136,591
Depreciation -79,992 -106,680 -35,544 -17,784
EBIT 45,008 22,070 97,069 118,807
Taxes -18,003 -8,828 -38,827 -47,523
Net income 27,005 13,242 58,241 71,284
OCF 106,997 119,922 93,785 89,068

3. Working capital
WC requirement 30,000 30,900 31,827 32,782 0
CF of change in WC -30,000 -900 -927 -955 32,782

4. Salvage value
Machinery salvage 25,000
ATSV from selling the machinery 15,000

5. Project CFs
OCF 106,997 119,922 93,785 89,068
CF of change in WC -30,000 -900 -927 -955 32,782
Capital spending -240,000
ATSV 15,000
Project CFs -270,000 106,097 118,995 92,830 136,850

6. Decision criteria
NPV (at 10% discount rate) $88,009.73
 Year 0 1 2 3 4
MACRS Depreciation 33.33% 44.45% 14.81% 7.41%
1. Initial investment
Machine price -50,000
Shipping & installation costs -20,000
Total capital spending -70,000

2. Operating cash flow

Sales revenue 110,000 110,000 110,000 110,000
Cost -70,000 -70,000 -70,000 -70,000
Depreciation -23,331 -31,115 -10,367 -5,187
EBIT 16,669 8,885 29,633 34,813
Taxes -6,668 -3,554 -11,853 -13,925
Net income 10,001 5,331 17,780 20,888
OCF 33,332 36,446 28,147 26,075

3. Working capital
CF of change in WC -5,000 5,000

4. Salvage value
Machine salvage 10,000
ATSV from selling the machine 6,000

5. Project CFs
OCF 33,332 36,446 28,147 26,075
CF of change in WC -5,000 5,000
Capital spending -70,000
ATSV 6,000
Project CFs -75,000 33,332 36,446 28,147 37,075

6. Decision criteria
NPV (at 20% discount rate) $12,254.82
 Year 0 1 2 3 4 5
1. Initial investment
Fixed assets -320,000
Total capital spending -320,000

2. Operating cash flow

Operating income 150,000 150,000 150,000 150,000 150,000
Lost sales -20,000 -16,000
Depreciation -64,000 -64,000 -64,000 -64,000 -64,000
Depreciation tax shield 16,000 16,000 16,000 16,000 16,000
OCF 113,500 116,500 128,500 128,500 128,500

3. Working capital
CF of change in WC -25,000 25,000

4. Salvage value
Fixed assets salvage 30,000
ATSV from selling fixed assets 22,500

5. Project CFs
OCF 113,500 116,500 128,500 128,500 128,500
CF of change in WC -25,000 25,000
Capital spending -320,000
ATSV 22,500
Project CFs -345,000 113,500 116,500 128,500 128,500 176,000

6. Decision criteria
NPV (at 13.45% discount rate) $104,774.38