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1463 1 4630 46
uS e a n
u S e a n
u S e an 1
my X adem
y X
adem
y X
cade c c
EZ A EZ A EZ A

0 0
an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

0 0 0
an 1463 an 1463 an 1463
XuSe XuSe XuSe
cademy cademy cademy
EZ A EZ A EZ A

0 0
an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

0 0 0
1463 1463 1463

EZ A
cademy
XuSe
an
RSM333 EZ A
cademy
XuSe
an

EZ A
cademy
XuSe
an

UTSG
0 0
an 1463 an 1463
XuSe XuSe y Xu
S
EZ Acad
emy
2022.09.22EZ Acad
emy
EZ Acad
em

0 0 0
an 1463 an 1463 an 1463
XuSe XuSe XuSe
cademy cademy c adem
y
EZ A EZ A A
EZ UTSG 校区
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u S e a n
u S e an 1
my X adem
y X
adem
y X
cade c c
EZ A EZ A EZ A

0 0
an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

0 0 0
an 1463 an 1463 an 1463
XuSe XuSe XuSe
cademy cademy cademy
EZ A EZ A EZ A

0 0
an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

0 0 0
an 1463 an 1463 an 1463
XuSe XuSe XuSe
cademy cademy cademy
EZ A EZ A EZ A

0 0
an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

0 0 0
an 1463 an 1463 an 1463
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cademy cademy c adem
y
EZ A EZ A A
EZ UTSG 校区
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my X adem
y X
adem
y X
cade

Disclaimer
c c
EZ A EZ A EZ A

0 0
an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad
This complementary study package is provided by Acad
EZ Easy Education Inc. and its affiliated mentors.
EZ Acad
This study package seeks to support your study process and should be used as a complement,
NOT substitute to course material, lecture notes, problem sets, past tests and other available
resources.
0 0 0
an 1463 an 1463 an 1463
We XuSe XuSe XuSe
emyacknowledge that this package contains
cad adem
some
y
c
materials provided by professors andy staff of
adem c
EZ A EZ A EZ A
the University of Toronto, and the sources of these materials are cited in details wherever they
appear.

This package is distributed for free to students participating in Easy Educationʼs review seminars,
4630 4630
and are not for sale uor an 1 commercial uses whatsoever. WeuS
Seother
1
kindly
ean ask you to refrain from S
y X y X y Xu
copying or
A adem in part or in whole any information
selling
c A c adem
provided in this package. Acad
em
EZ EZ EZ

Thank you for choosing Easy Education. We sincerely wish you the best of luck in all of your
exams.
0 0 0
an 1463 an 1463 an 1463
XuSe XuSe XuSe
cademy cademy c adem
y
EZ A EZ A A
EZEasy Education Inc.

0 0
an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

0 0 0
an 1463 an 1463 an 1463
XuSe XuSe XuSe
cademy cademy c adem
y
EZ A EZ A A
EZ UTSG 校区
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u S e a n
u S e a n
u S e an 1
my X adem
y X
adem
y X
cade c c
EZ A PROJECT WITH
A
EZ LIVES:
UNEQUAL EZ A
um

Chain Replication: Compound out to a common time horizon (equalizes the life span = Common life)
-Find a time horizon into which 0 all the project lives under consideration divide equally,
0 and then assume each
a n 1463 a n 1463
uSe it reaches this horizon.
y Xuntil
project repeats y Xu
Se
y Xu
S
d e m d e m d e m
ca ca ca
EZ A
Example: EZ A EZ A

Project A – 2 years
- Initial outlay/investment/CAPEX = $10,000
- After tax CF: 0CF1= $7000; CF2= $6000 0 0
n 1 463 n 1463 1463
e a e a an
uS
- XDiscount rate (k) = 15% XuS XuSe
c a d emy c a d emy cad emy
EZ A Project B – 3 years EZ A EZ A

- Initial outlay/investment/CAPEX = $10,600

- After tax CF: CF1= $5000; CF2= 5000; CF3= 5000
- Discount rate (k) = 15%
630 1463
0
Steps: e a n 14 an
y Xu
S
y XuSe y Xu
S
A c adem Acad
em
Acad
em
1) E
Compute
Z the NPVs of the three projects EZ EZ
2) Compute the common time horizon (life span) for projects: ! = #$%('! , '" ); least common multiple

IF
#
3) Compute the number of times each project is replicated: *! = $
!
#%& #%&
4) Compute the NPV under the Chain Replication Approach: !+,(1) = !+,! + (!())!"! + (!())#"
!
+⋯
n 1 4 63 0
n 1 4 6 3 0 o o !

n 1463
0
e a e a e a
XuS XuS XuS
c a d emy c a d emy c a d emy
EZ A EANPV (Equivalent Annual NPV): Annualize EZ Athe “rate of NPV creation” EZ A
- Find the NPV of the individual projects, and then determining the amount of an annual annuity that is
economically equivalent to the NPV generated by each project
over its respective time horizon.
%+,-./0 #%& 4630 1463
0
- 01!+, = !$ u!Sean 1 an
y X(!&')" y XuSe y Xu
S
A c adem [ ) ] Acad
em
Acad
em
EZ EZ EZ
Steps:
1) Compute the NPVs of the projects
2) Apply the EANPV formula in order
Take Highest EANPV 0if there are annual benefits 0 0
a n 1463 a n 1463 a n 1463
XuS e XuS e XuS e
c a d emy c a d emy c a d emy
EZ A EZ A EZ A UTSG 校区
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u S e a n
u S e a n
u S e an 1
my X adem
y X
adem
y X
cade c c
EZ A PROJECT CASH FLOW EZ A
ESTIMATION EZ A

Relevant component of Cash Flow of a Project:

- Do not include: 0 0
an 1463 an 1463
XuSe
o Sunky cost
m y XuSe y Xu
S
cade em em
EZ Ao Externalities EZ Acad EZ Acad

-
o
o
try
Allocated costs that are not incremental to the projects
Interest costs – financing costs are captured in the discounting process
Do include PV of:
costofcapital
DiscountRateIncluded

o All46aspects
0 of initial investment cost (equipment, added WC,
0 etc). 0
a n 1 3 a n 1463 an 1463

c a d emy
e
XuS o Impacts on operating revenues or costs,
c a d emy
e
XuStax
after T t Actademy XuSe Y
EZ A EZ A with capital investment
o PV of CCA tax shields associated EZ
ÉTEOATNIATNI
o Recovery of Salvage Value and any invested working capital if applicable ATNE
o Any “terminal value” for later time periods beyond the planning horizon
2 EE
o
in 4630
Any side effects or opportunity costs related to accepting project
§ Erosion:1cannibalization
u S e a n
of sales of other products/outlets14630
m§y XSynergies: Increased public awareness that improves
uSea
n IIIatetatmy XuS
my X sales of other products/services
cade cade Acad
e
EZ A EZ A taxdep EZ taxdep

General picture: 234 = −344567689 :;<7 (78= ) + 34855>89 ?:@< + 34A:@5

Complete NPV calculation of all future expected cash flows for a project:
Iiic
Puccats

1) PV of Initial Cash Outflows

0 0 0
a n 1463 a n 1463 a n 1463
PV
2) Xu e
S of Operating Cash Flows: S e uS e
emy 78 = (9:; – 7=>? – 77@)(A − ?) + c77@ em=y Xu e my X
c a d a d (9:; – 7=>?)(A − ?) + 77@ ∗ ? EZ A c a d
EZ A EZ A um
Þ Incremental after tax operating profit generated by the project
Þ PV of CCA Tax Shields (Tax saving generated in every period by the depreciation of the asset)
“isolate CCA” because different inflation effect, risk (discount rate) and time frame
3) PV of ending Cash Flows (includes salvage value of the asset + released NWC)
630 630
S e a n 14 S e a n 14 S
y Xu y Xu y Xu
A c adem A c adem Acad
em
EZ of initial Cash outflows
Step 1: PV EZ EZ
+,B$C0CDE /,F0 = $1+0CG + ∆!E$G + F++ $FGHG
- The initial cash flow is made up of all upfront costs of the project
o Initial investment – market price of the fixed assets: C0
o The 30
146additional 630
Net Working Capital required by the14projects: ∆!E$G 1463
0
e a n e a n e a n
XuS XuS XuS
c a d emy c a d emy c a d emy
EZ A EZ A EZ A UTSG 校区
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S e a n S e a n S e an 1
Xu y X u y X u
c a d emy c adem c adem
EZ A Step 2: PV of Operating Cash Flows EZ A EZ A

a) PV of after tax net operating profit:

ATNI
("#$−&'()()(1−,)
!
!J(!&))"
- +,HI#B =∑ = !J(1 − H) K L
(1+.)! ) Annuity
Pusactor
- Net Operating profit: before-tax
0 net operating revenue (NI = revenue – costs)
1463 630
S e a n S e a n 14 S
e m y Xu e m y Xu e m y Xu
d
a and capital budgeting: ca d ca d
Z Ac
- EInflation revenue45 EZ Acost42 EZ A
um
o Nominal cash flow can change with inflation but revenues grows at one rate and costs grow at
another rate: +,(#B) = +,($.0 +.K.$L.F) − +,($.0 /,F0F)
PUATNI CPUrev PUCOSAL t
o Fisher t
relationship: growingannuity grotwingannuity
n 1 4630 n 1463
0
n 1463
0
XuS e a (1 + !MNO'PQ RPST) = (1 + *TPQ *PST) ∗ (1
XuS +
e a
O'UQPSOM' *PST) XuS e a
c a d emy àfor low rate of inflation: this is
c d emyapproximated as: 'MNO'PQ *PST ≅ *TPQ *PST
often
a c a d
+ emy
EZ A EZ A EZ A
O'UQPSOM' *PST
IEEE.it i rearate
o We can evaluate project in either:
§
Real cash flows with a real discount rate (no inflation in either) 0
4 630 63
1 n 14 inflation)
In Tu
§ XORS e a n
Nominal cash flows with a nominal discount rate
S a
(including
e S
y u y Xu y Xu
A c adem A c adem Acad
em
EZ EZ EZ
o Example: The nominal interest rate = 14%; inflation rate is forecasted to be 5%

30 Nominal NPV calculation: nominal CF and1discount

1461) 4630 rate 1463
0
an a n an
XuSe MGG
O # = 26.47
MPG
O + (!.!O)
−1000 + !.!O XuS e XuSe
cad emy c a d emy→ P^^T_S cademy
EZ A w EZ A
w EZ A

2) Real NPV: real CF and discount rate

Real CF adjusted for inflation:

0 0
an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad
!($,QC$DE +D0. !.!O
Real interest rate = !(C$RED0C,$ +D0. − 1 = !.GP − 1 = 8.57143%
we
PS!.OT
00PUV.PS
−1000 + !.GUPS!OT + (!.GUPS!OT)# = 26.47 → P^^T_S
me w

0 0 0
an 1463 an 1463 an 1463
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cad emy cad emy c adem
y
EZ A EZ A A
EZ UTSG 校区
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uS e a n
u S e a n
u S e an 1
y X y X y X
A c adem A c adem A c adem
EZ EZ
b) PV of depreciation tax shield: depreciation tax shield = depreciation*t EZ

109 510m
v Straight-Line Depreciation method:
-
/,F0 ,R 0W. DFF.0
Annual Depreciation/CCA Expense each year = LF.RLE ECR. ($) t 20
4630
n 1shield /,F0 ,R 0W. DFF.0 630
n 14 TS 10m 20
- Annual depreciation
S e atax = ∗ S S e a 2m S
y Xu LF.RLE ECR. ($)
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v Accelerated Depreciation/Declining balance method:

i
X0 × I × [ !(G.P) Y& × I × [ !
+,XXHIY = )([ × !() − ")([ × (!())"
i
-
3 0 0 0
a n 1 4 6
a n 1463 a n 1463
- XCCA
uS Expense each year = $$1 *PST ∗ e$$ (Undepreciated
e XuS e Capital Cost –apply first-year half ruleX
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EZ A
c
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c Ucc CoAcd 0 EZ A
c
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6 2 boo100050950 950 0 95
- NOTE: CCA rules
1. New assets only get half the rate in their first year until recently. This first-year half rule temporarily
un

2024. XuSean
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suspended. 150% of CCA rate is now allowed in the first year for assets acquired after Nov. 29 2018 till
0
S e a n 14
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e m y e m y Xu e m y Xu
ca d d
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nd
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New loom
old
8É
(maximum to remove is the original amount put in for the asset pool)
4. We 6assume
0 asset pool remain open (maintains a positive 0balance when you are selling an asset) and 4630
a n 14 3 mm a n 1463 n 1
y X uS e assets are sold for less than their original
y X uS e
purchase price y X uSea
m m m
cade cade cade
EZ A EZ A (Salvage value > UCC – depreciate too fast Eand Z Agot
§ Therefore NO recapture
o too large tax

o
shield) or terminal loss (Salvage value < UCC – depreciate not fast enough and get some
extra tax shield) and possible capital gains taxes
UCC left in the pool
T=0 CAPEX 630= $100,000 add to asset pool 630
+ $100,000 $100,000 50 20 10.00
S e a n 14 S e a n 14 S
Xu Xu y Xu
T =ca1demy Get half of the CCA expense (CCAcrate =y20%)
adem - $10,000 $90,000 209 18000
ca d e m
EZ A EZ A EZ A
T=2 Get the entire CCA on the UCC - $18,000 $72,000 209 14400
T=3 Get the entire CCA on the UCC - $14,400
End of Year 3 Sell asset
Salvage4630 Sale price is deducted from the pool 0 - $25,000 $32,600 0
an 1 a n 1463 a n 1463
XuSe XuS e XuS e
cad emy c a d emy c a d emy
EZ A EZ A EZ A UTSG 校区
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u S e a n
u S e a n
u S e an 1
my X adem
y X
adem
y X
cade c c
EZ A EZ A EZ A

Quiz- Advantages of “bottom up” or “tax shield”approach:

o Can analyze impact of a project on operating costs and revenues separately
mm
o Can isolate the CCA "tax shield" of a project
we
30 elements of cash flows differently
ATNI3Not 0 Affected
o Inflation my affect1 4 6these 146
mm XuSe a n a n
y X uSe DepAffected y Xu
S
e my different
o adThese elements of cash flows may be deemed
d e mof different risk, so it is possible to apply d e m
c ca ca
EZ A EZ A EZ A
different discount rates if we separate them out this way e.g. use risk free rate for PVTS
o The time frame for these elements of cash flows can be different
un
o
un O
CCA expenses are often much longer lived than project cash flows!
MoretaxSheild
0 0 0
Step 3: PV of a 1463Cash Flows
Ending
n an 1463 an 1463
XuS e XuSe XuSe
c a d emy cad emy cad emy
EZ A EZ A EZ A
Y&* (∆#_X*
- +,\X] = (!())*

- The ending cash flow is the non-operating cash flow in the final period：
o Dispose of remaining assets: #$/ and Repatriate working capital: ∆&'(/

630 1463
0
e a n 14 an
Step 4: NPV for the
S
Xu is the sum of step 1-3:
yproject y XuSe y Xu
S
A c adem Acad
em
Acad
em
EZ EZ EZ

!+, = −+,B$C0CDE X,F0 ($hG ) + +,H]#B + +,[.`+./CD0C,$ 0Da FWC.E[ + +,\X]

0 0 0
an 1463 an 1463 an 1463
XuSe XuSe XuSe
cad emy cad emy cad emy
EZ A EZ A EZ A

0 0
an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

0 0 0
an 1463 an 1463 an 1463
XuSe XuSe XuSe
cad emy cad emy c adem
y
EZ A EZ A A
EZ UTSG 校区
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Xu y X u y X u
c a d emy c adem c adem
EZ A Practice: EZ A EZ A

Ross, Stephen, et al. Corporate Finance. McGraw Hill, 2022.

8.11 International Buckeyes is building a factory that can make 1 million buckeyes a year for five years. The factory
costs $9 million. In year 1, each buckeye will sell for $4.50. The price will rise 5 percent each year. During the first year,
n 1 4630 n 14
630
variable costs will be $0.375
S e per
a buckeye and will rise by 2 percent each year.
S International
e a Buckeyes will depreciate S
m y Xu m y Xu m y Xu
d e d e d e
the factory
EZ Aatcaa CCA rate of 25 percent. International Buckeyes ca
EZ A expects to be able to sell the factory for $750,000
EZ Aat
ca

the end of year 5. Assume the company has other assets and UCC is always positive in the asset class. The discount
rate for risky cash flows is 25 percent. The discount rate for risk-free cash flows is 24 percent. Cash flows, except the
initial investment, occur at the end of the year. The corporate tax rate is 38 percent. What is the NPV of this project?
0 0 0
a n 1463 a n 1463 a n 1463
XuS e XuS e XuS e
c a d emy c a d emy c a d emy
EZ A EZ A EZ A
cost 0.375 2m88
37588 1 14731135 1,040,567.613

630 1463
0
e a nAT
14NI 7470791.486 an
y Xu S
y XuSe y Xu
S
em em em
Acad Acad Acad
EZ 9,000,000 E7 70,791.486 975825
Z EZ
PUof CF
1283448.514

Puccats
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0 9355537 xn 14630É 75855 5 1
Is14630
u Sean XuSe
a
XuSe
an
my X emy emy
cade Acad cad
EZ A EZ 1,339,833.615 EZ A

NPV 56385.10053

0 0
an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

0 0 0
an 1463 an 1463 an 1463
XuSe XuSe XuSe
cad emy cad emy c adem
y
EZ A EZ A A
EZ UTSG 校区
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u S e a n
u S e a n
u S e an 1
my X adem
y X
adem
y X
cade c c
EZ A REPLACEMENT EZ
DECISION
A EZ A

Compare the cash flow with or without the replacement: focus on the net change in cash flows

630 630
S e a n 14 S e a n 14 S
!+, = ∆+, Xu + ∆+,HI#B + ∆+,XXHIY + ∆+,\X] ; replacemify NPV
yC$C0CDE Xu > 0 y Xu
A c adem A c ade um Acad
em
EZ EZ EZ

- ∆+,C$C0CDE = ∆'TS $1+0C + ∆!E$ + F$ = $G,$.c − $G,,E[ + !E$$.c − !E$,E[ + F$

! !
!J(!&))" !J(!&))"
- ∆+,HI#B = ∆!J(1 − H) × K L = (!J#.c − !JdE[ )(1 − H) × K L
n 1 4630 )
n 1 4630 )
n 1463
0
e a e a e a
XuS y Xu
S XuS
c a d emy c a d em∆X+ ∗[∗I !(G.P) ∆Y&" ∗[∗I ! c a d emy
EZ A - CCA Declining balance method: ∆+, A =i
EZXXHIY j∗i j−i j ∗ i(!())"E
jZ A
[() !() [()

o ∆$G = ∆'TS $1+0C = $G$.c − $G,E[ ;

o ∆G,$ = G,$.c − G,,E[0

63 630
S e a n 14 S e a n 14 S
y Xu emy
Xu y Xu
A c adem !J(!&))" Acad
!
Acad
em
- E Z method: ∆+,XXHIY = ∆$G ∗ H ∗ K ) EZL EZ
Straight-line FEE ACO ASU
∆\X] \X]",*-. J\X]",/01
- ∆+,\X] = (!())"" = (!())"

630 1463
0
1463
0
Example: Sean 14 e a n e a n
Xu XuS Conew XuS
a d emy a d emy a d emy
EZ A
c • A firm is considering the purchase of c
EZaAnew machine priced at $350,000
c
to replace an existing
EZ A machine.
www
• The present market value of the existing machine is $50,000 and it is expected to have a salvage value of
suo'd $15,000 at the end of eight years. Todd ACO 350k 50k 300k
• Management estimates that the company will benefit from the new machine by reducing annual operating
expenses by $50,000 over the life of the project, which is expected to be eight years.
ANI n 1 4 630 630
n 14of eight years.
• This new machine S e
is a
expected to have a salvage value of $100,000 at e
the
S aend ASU LOOK 151 y85
m y Xu W m Xu
y asunew m XuS
d e
ca marginal tax rate is 40% and its marginalZcost ca d e a d e
• Z Afirm’s
The
E E A of capital is 15%. Both machines belong to E Z Ac
CCA
class 10 which has a CCA rate of 30% and
• The CCA class will remain open. Estimate the NPV of the replacement
• Note: the “net” investment is $300,000 (cost of new minus salvage value of old) is used as the asset cost in the
PV of CCATS30calculation 0 0
an 1
46
an 1463 an 1463
u S e XuSe XuSe
y X emy y
A c adem cad c adem
EZ EZ A A
EZ UTSG 校区
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1463 1 4630 46
uS e a n
u S e a n
u S e an 1
my X adem
y X
adem
y X
cade c c
EZ A EZ A EZ A

1) ∆+,C$C0CDE = ∆ 'TS $1+0C + ∆!E$ + F++$ = −350,000 + 50,000 = −300,000

mm

! !
!J(!&))" !J
(!&!2)3
2) ∆+,H]#B = ∆!J(1 − H) × K ) L = 50,000(1 − 40%) × K !P L = 134,620
630 u 630
S e a n 14 S e a n 14 S
y Xu y Xu y Xu
A c adem ∆X+ ∗[∗I !(G.P) ∆Y&" ∗[∗I ! A c adem Acad
em
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∆+,
3) E EZ
j ∗ i !() j − i [() j ∗ i(!()) "j
EZ
[()

TG,GGG∗TG%∗OG% !(G.P∗!P% UP,GGG∗TG%∗OG% !

=i j∗i j−i j ∗ i(!(!P%)3 j = 67,373
TG%(!P% !(!P% TG%(!P%
ammonium
146=30 $.c ,E[
0
1463 = 30,000 1463
0
o
e a n ∆$ G ∆'TS $1+0C = $G − $G = 350,000
e a−n 50,000 300,000 e a n
XuS XuS XuS
c a d emy c a d emy c a d emy
EZ A EZ A EZ A
o ∆G,$ = G,$.c − G,,E[ = 100,000 − 15,000 = 85,000

∆\X] \X]",*-. J\X]",/01 UP,GGG

4) ∆+,\X] = (!())"" = (!())"
= (!(!P%)3 = 27,787
mo
630 630
5) !+, = ∆+,C$C0CDES +
e a n 14
∆+, + ∆+, + ∆+, S e a n 14 S
Xu HI#B XXHIY \X]
emy y Xu y Xu
A =ad−300,000
c + 134,620 + 67,373 + 27,787 = −70,220
A c adem < 0 do not replace Acad
em
EZ EZ EZ

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an 1463 an 1463 an 1463
XuSe XuSe XuSe
cademy cad emy cademy
EZ A EZ A EZ A

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an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

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an 1463 an 1463 an 1463
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cademy cad emy c adem
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EZ UTSG 校区
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 0 EASY EDU | RSM333 W2 知识模块课 | 2022F 30
1463 1 4630 46
S e a n S e a n S e an 1
Xu y X u y X u
c a d emy c adem c adem
EZ A Practice: EZ A EZ A

Ross, Stephen, et al. Corporate Finance. McGraw Hill, 2022.

8.15 Office Automation Inc. must choose between two copiers, XX40 and RH45. XX40 costs less than RH45, but its
economic life is shorter. The costs and maintenance expenses of these two copiers are given as follows. These cash
630 630
flows are expressed in realS e n 14
terms:
a S e a n 14 S
e m y Xu un e m y Xu e m y Xu
ca d ca d ca d
EZ A EZ A EZ A

The inflation rate is 5 percent and the nominal discount rate is 14 percent. Assume that revenues are the same
0 0 0
a n 1463 a n 1463 a n 1463
regardless e
XuSof the copier, and that whichever copier themcompany e
XuS chooses, it will buy the model forever. Which e
copier
Xu S
c a d emy c a d e y c a d emy
EZ A should the company choose? Ignore taxes and A
EZ depreciation. EZ A

n
yegg
0 0
an 1463 an1463
y XuSe NPV 40 900 128 y XuSe 1 3 1206.090538 y Xu
S
em dem em
EZ Acad EZ A
ca
EZ Acad

NPV rn45 1400 557 1 1.8575 1773.662779

1463
0 EACH 1206.1
146A
30 3 472.82 1463
0
an an an
XuSe XuSe XuSe
cad emy adem
y
cademy
EZ A EACHA c
EZ 45 1773.7 17853 450.92 EZ A

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an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

0 0 0
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XuSe XuSe XuSe
cad emy cademy c adem
y
EZ A EZ A A
EZ UTSG 校区
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 0 EASY EDU | RSM333 W2 知识模块课 | 2022F 30
1463 1 4630 46
uS e a n
u S e a n
u S e an 1
y X y X y X
A c adem A c adem A c adem
EZ Ross, Stephen, et al. Corporate Finance. McGraw
EZ Hill, 2022. EZ
8.23 ABC Company is considering purchasing manufacturing equipment from two different suppliers. Equipment A
has a purchase price of $2.9 million and will cost $80,000, pre-tax, to operate on an annual basis. Equipment B, on the
other hand, has an initial cost of $5.7 million and costs $69,000, pre-tax, annually. Equipment A will have to be
4630
n a1salvage
630
n a14useful life of 12 years with a
replaced every 8 years and S has
e a value of $340,000, while equipment B
S ehas
a S
e m y Xu e m y Xu e m y Xu
a d a d d
Acais
salvage E Z Acof $420,000. Both equipment sets are in CCAEclass
value Z Ac43. Assume the company has other assets andEZ UCC
always positive in the asset class. The tax rate is 35 percent, and the discount rate is 13 percent. Calculate the EAC for
each equipment set, and decide which manufacturing equipment to purchase.

0 30 5 4630
NPVaXuS2.9m
ean
1463 80
095
35
41 cIss X
8.933
u S e an 1
46
1
53,5 147,4 3535 4.7
XuSe
an 1
my adem
y my
cade Z Ac
ade
EZ A ZEA E
349,9

2303998.494
1 4630 1463
0
IACA Sean 2303998.494 an
Acad
emy X u 0 5Academy480,122.6882
XuSe
Acad
em y Xu
S
EZ EZ EZ

NPUB 5.7m 69000835 6 F 87,3

53.1 1
1454 49 383
0 0 0
an 1463 an 1463 an 1463

cademy
XuSe 4299
cade
my2 XuSe
cad emy
XuSe
EZ A EZ A EZ A

4420247.527

EACB 144420247.527
630 1715 746,960.323
1463
0
an Sean
y XuSe y Xu y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

0 0 0
an 1463 an 1463 an 1463
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cademy cad emy c adem
y
EZ A EZ A A
EZ UTSG 校区
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 0 EASY EDU | RSM333 W2 知识模块课 | 2022F 30
1463 1 4630 46
u S e a n
u S e a n
u S e an 1
my X adem
y X
adem
y X
cade c c
EZ A TOPIC 1 QUIZ REVIEW EZ A
QUESTIONS： EZ A

AAR, Payback (and Discounted Payback), PI, NPV, and IRR (Modified IRR)

- What are the assumptions? 6Are

30 they reasonable? 630
e a n 14 e a n 14
- How dodwe
a em
y Xu
S
calculate it?
adem
y Xu
S
em y Xu
S
EZ A c
EZ A c
EZ Acad
- What are the decision rules?
- Do we want the measure to be a large number or a small number?
- When do we use the rules?
- What are the advantages and disadvantages of each method? 0
1 4630 1463 1463
0
- e a n
XIsuSit appropriate to use the method to rank different e a n
XuSprojects? XuSe
an
c a d emy c a d emy cad emy
EZ A - EZ A (NPV and IRR)
Does the model relate to another model? EZ A

Project Types and Selections

- What to do if different models recommend a different solution?

630 630
- How do we select S e n 14when they are contingent/mutually exclusive?
projects
a S e a n 14 S
m y Xu m y Xu m y Xu
- How
E
a d e
Z Acdo we select projects under budget constraints?
d e
Aca do you calculate how much the constraint costs
EZHow
ca
EZ A the
d e

firm?
- With budget constraints, which methods are best to use?

0 0 0
an 1463 an 1463 an 1463
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cad emy cad emy cad emy
EZ A EZ A EZ A

0 0
an 1463 an 1463
y XuSe y XuSe y Xu
S
em em em
EZ Acad EZ Acad EZ Acad

0 0 0
an 1463 an 1463 an 1463
XuSe XuSe XuSe
cad emy cad emy c adem
y
EZ A EZ A A
EZ UTSG 校区
导师：YUMI | EASY EDU 14