day /date 19-2 12-3 12-4 elf =Test Problems: (a)__= h= 9 -$-20 million |b) No. Wis a sunk cost fo lwifiad outlay would ineeore by $4 million ¢ ca) Eeir- 60.503. ¢ Sab 1.5 Cee w5( 0.6) 43 gued_million ub) 1:5 ~5 4 3 = 3 million cc) Yes becawse L.5(0.7) 4 3 = 4.08 millow Tax on value. 6.35(MV— BV) BV- 95 y9% = 1.85 million Mv & million Tor = 0-35 (9.7.26) 2 0.265 million Salvag = 1.26- 0.2625 = 6 AIS xloccooo = ¢ 6487500. a ae +, = — 45000 Chyp——Feoelo65)+ geefer26) — Sufi NP = — 325-77 CE, = S000 te CFio Neve 4156.54 Positive mean: go-ahead with the Prjeck, Hence j2-5 NPv of. System As $5 31.56 FAR= 178-24 NPV of System Be ¢ 3q2).)) i EAA = )516.74 choo re System & becawe of highsr EAA + ZBsoz ee r*- "Fr = = OOS day /date 12-6 a) ‘raight_line_metiad, MACRS £09000 2 Us 200000. Bu olep rahe x cov Ma Lecce» Abu oD Y. 200000 Zboaoe Ys Losoee 120600) Xu 200000 $6000 cb) | MACRS would product Wigher NPV as Tax _savivg with Shaight dine MACRS M4 0:35 4200000 =. Toco Bbucoo 40.35 = IOS. ‘o “lacoo, £000 X0.26 « _ |26000 Ya =Leo! Novo KO25 2 42000 Mu. Aaeo Sooy x 0.262 11600 NPV = 231848 24 1327.74 Difference = 2UIR-27-719- 231BUB = §V478.41 12-3 Expecled MPV 0:05 (~7o) 4 6-26 (-25) 4 0.5 (19) 4 6-2(16)4 &-65( 40) cS 2 million devi 10-4)"0. "0.2 4 (36-3)*0.05 -{ 55g sk 22: hm million Cv, 2362. 4,87 3 wee (a)__= 140000 = 30000 = 800g = — 138000 Ub) 4 —( Se000. 5 h600)-6--65—}—UG6a_< y) Yao (50000 - 56100) 6-654 Bhloo> 852136 _ iy__Ya= (50060-6500) 0. 65 4 Th500 = 9 Baas cay Ya = (50000 255c0) 065+ 28506 = ¢ Liyre ale = Go000 * By = {Too - £6100 - 16606-25509 = dog ZB Atmeday /date ee 43 Tax eqcity - oo — NAO0) 6.35 = leg _ Tx (Céco00 = 400) 6. 2 t Yz2 41425 +(6cc00 - 16835)-+ Go00 = cc) 2- L. i) (© cE. Cay $992590 NPV at _ WACC = Qy NP Ve Steanacem acsaumgen ~ $182.44 So no red. Wy a sunk cost 1, + =135000 = $000 5a00 = = I4Bon0 Cy _Y4 = (52000 + 41110) 0.65 4 UTI90 = eantece ii) Ya = (52006 4 64250) 0-65 + 64350= | 97] cit) Ya = (52000 + 2IUEO'. 65 + 21u50 = 6919245 My = A4sc0 BVe (43000 — YT19IG~ 64350 - 21450 = loslo Tax = CquS500 - loolu)o-36 = aqgm-5 = GNA 5 & BH 4 (GU G06 — 2951-5) 4 Sooo 139124 Nov. 185839.01 so yes we ae et —2=10__{ Inifial outlay = = %000 ~ 2500 ~ ¢ 2000-400) _ 12000 stnerse | ys [ ys C yf CE. CF, CFy | Depreciation tax _sovin v4, {0.20 % g000) — dicot x ou —2c0 6.32 x coo) — 21 ROU 2 ISU (6-19 x @0g6) ~2100] x64 = —-222 YyClo.12 x@¢o00) - n0eY xo 4 = —456 Yellow x oe) = 7160] nou . — URE 0.06 X %o000) Hoot xvo.u = — 648 Cash Hows CF, pe = (ooh 500)'t (-200) = 1300 = Kasoo¥} Igy 16a sf a500°% (-apa) = 1ase A500 (0.6) + (-456) = lous In s © A606(6-6) + C-4es) = _lo12 » a5ai (0.0) + C- 649)> 952 Prday /date 2-10 Initial_cutlay. + Cost = — 8000 old machine = £2500 nge_in N6we = 2009-500 =—$ I$a0 ale of old machine= (2500 -2loa)o-4 = 160 Tax_on - 1160 CF. — 8000 - |500 ~ 160 Gam = Depreciation _tax_savings » Y4 +» [0.20 xgo00) - 350] x 0.4 = 590 Yo_: [0.32 xG000) - 340] xo.4 = 884 Y,_: [Co.tdy %000)- 360] x au = 46g Vy: L(0-12x @o00) - $56) xo. 4s 244 | ys, > C(o.U x g000) = 250) x o.y = 212 xe: [C0.06 ¥ 8000) ~ 850) x 0. Y= 52 Cash Slows CE, : (loca +1500) (0.6) + 500» 20000 CE, (Soc 4+ 884 = 2384 CE, (600 + 468 = INGE Cera 1509 4 24U = 1244 (Cpaaee, 1500 4 212 = Itt For CFe¢ Operational CF: 15004 52 = 1652 My - $00 Rv. 0 Taxon salvage value of new mashine = 0.4 x $00 = 320 O.¢ of old machine « 500 Tax_savin sale of old machines 500 x 4.4 = 200 CE ¢ = 1652 4 (300-320) + J5a0 4200 ~500 = 3232 NPV= $1908.47 hence accept dhe replacement projects Primeday /date V1 Outlay = — $0000 S Veemanas 2 “boos Dode = 22000 Tax savinga a depr. Yi: (Co.2r x goooe] vo. 4 = buov Yo + ( b- 32 ¥ $0000) Xo4 = [0240 Ys + (0.19 x $0000) xo.4 = 6080 Yu + (0-12 % go000) x 0.4 = 3840 Ns + Co-N x govop) x 014 * 3620 Mes (o-o6 x gooww) x 0. ys 1920 Cash flows: CF, . 22000 Co.6) + 640 = 11600 CF, : 22000(0.6) + 10240 = 23440 \r00 + 6080 = 19280 CF, CFy s [3200 + 3840 = \to4o CF, 2 13200 4 3520 = |6t20 CB, « \3200 + Io * 16120 CE, . I3r00 + = I3lo0 CF, . \3200 4 = (3200 Nev. 165162.22 hence it slould be acepleal ——_ Poday /date =i Initial outlay, = _— 30000 Depreciation soy ings. Ys = (0:10 % fo000) @-4 = 6400 My = (0.32% 80000) 0-4 = 25600 ae $o2Mo Ye = COsthx Socom) A.Us \5200K 0-4 = 606 Yue (0-12 % Boo00) 0-42 Abog/eo.Ke BB4O Nee (o- tt x 80000) 0- U = aego KON = 3520 Ye = Cook x geooo) os *€oo x o.u . 1926 Cosh Hows T6000 CFE (22000 - 988a0 + 6400 = \o000 a 35 606, ce, . ( 22006- 4A lomo: foo CE, ( 2000 = 18200) 0.6 + GoRO= 10160 CE = (220004 Vbco)o.6 + 3940 - 1280 ICE. 2 Cnoba = BQo0)0.6 4 35205 MNkYO For C% Opational Ce: (229007 4oo)o.b +1420 - 12240 Y co NPV = = 34881-15 $2=12, fa) Projec) A= 6-2 (6060) ob (67$0) 4 0.2C 4500): 6460 Project Be 0.2(0)4 0-6 (6460) + 0:21 R000)- 1.450 Cis 62fa-b380) 70.6 + CASe0- 6786)" O:% =a hore = 225000 = 414. 84 Cv 414-34 [6450 = 0.076% (b) Nev of A at lOY _ £ 100% .26 NOV of B at Ys § tEd4L0) Projectday /date nei * a) Projec) A's NPVs ¥ YIU. 80 Projet B's wPVs 6 6906.u2 hence &. Cd) Project Als replacement chain, ° 1 au 3 fh mt — 10a looe $000 lovee Bo00 loco ieee = lone Ais Neve 7395, 04 > By NPve same _as before = % 6405.47 hence A Should be selected (4) Project A's BAA = M3472 Project B = \878.42 hence A should be elected. ety Replacement chain day Mache (1-3 e ' a 3 4 5 ‘ a + + 1 [Mtoe 86000 P5000 F000 S000 —FSc00 S000 =t1t838- =$6oa0 NPV = $ 50280. 15 B® Machine 356-6 i L $ s ¢ = 366000 WLKee ——te24ee 102400 Fodoo —¥24oo (4 24Y. eee — Sa NPV = $ -cdtpattnnems ¢ 53349. 10 =x Hence Machine 256-6 arrordiw te RC. >» EAA of SOihertam 356-6 = 13345.uU5day /date 12-15 Plane A o \ zB 2 a s 6 7 g “%. 10 poy i - +—4 \ 4 1 1 “45 36 35 2S 5 25 35 35 35 3S 36 =105 ae NPV 2 ¢El:38 million } twee Plane K NPv of 8 = $43.44 million. iZ-16 Machine A e 1 L 3 4 £ 6 1 g - 4 + + +———+ + : t 8-4 we HF WS Wf Gt G7 41 47 =4 =F NPV of Az § 9.52 million Vy cheore Nev ef B= ¥ 9.90 million 2-19" NPV of X = 8 58542.u5 NPV of ys $ 39049. 90 FAs of x. $ 23540.74 | hence choose pret EAA ef Y = 2 loZol.24 J 4 12-18 beara case CE, =< = Sh000 CE, 2 (12000) (0.6) +(1206x6.4) = joose Cee loag0 CF, . loego cee? Cre lO%g0 + T20G(e-4) = 12960 NPv. —20 $0. 68 Bare core CEL = 3hcoo CE yt CE loo §O NPv ~ 2211.13day /date | Best case Ce, = -86006 CE, to CF. = looga Cte CE, = Neco (0.6) = F200. NOV. 13328.93 NPV emeclects 6.33 (1$328.98)4 0.83 (2080.60) 40.92 Laas 444 65 « « 42-1 CFo_=_~950000~ 25000 = _ — X10 e CE, . [4o000 (0.4) + 82500] . 136506 € CE, = L S54e0o + \l9600] = 166500 e Ce, = L5tea+ 21600|- 1600 e CEy = [54000+ 11500] = FI500 { CEg = 541000 + 23000 — ((28000x0+4)) + 2000 : $NF00 (ay NPv. 161296 . 4% 1 IRA = By.247. ; MIRR = 26.647 Payback» 1. 88 years + | Colenlation for MP2 + =81So0 . TV Cee)” TVs A220 4 11600 C1. to) 4 FGoo(1-10)*4 166500 (1-10)? 126500 (1-10)" =» 19-8626 5 mMiRR - (Tor26.15\ "5 _ 4 MER = 90°, gttS000 7 —_«e__ | r 4 2 3 cs ~ 718000 126600 166500 FS00 Seo N00 T3Bloo ——__1 A year + Utloo _ Pus Té6800 aday /date a5) if cosd cuings_maease by 207, ther cost saving « 2 x Tove? 1og0ao Operakional or = 10%o00 (0.6) A Depo CF, = -2%ooo CF, 64800 4 325002 147300 CF, - 6400 4 N12S00 = 1771300, CF, 64800 4 3100 102300 CE = 648004 17002 22300 CF = 64900 + 23000 - (Asano x6.4) + A000 = 103600 NPV = 2029 36.18 20 $2 y aoo00 ~ CFy = = 416000 CE, = (12e00x0.6) 4 2500+ £ 257400 CE, = 43200 4 IInfou = & 165400 CE. 432004 218002 € $0400 CE = 42200 4 ItfoOr $F £0400 Cex 432004 23000 - (18000 % 6.4) + 25000 #92000 NPv= 120955.98 tc) Worst case. CE, = - A5000u - 30000 = — AS00000 CE, = Rew lag too CF, = 155400 Ch, = 807}F00 CFy 2 60700 TOOt CE5 = tabbed + [8000 — U6ov0x04) +0000 = ¢ taadan Alev = & cabot gf 117, 197-3day /date | Best case 7 _ am che = = asone = 2owo = =Reooo (Ey = § 141300 - —, er, = g 177300 _ a CF, # 102300 _ _ C£y» % 82200 a _ & CF, = 6Ugco 4 2Boco— (Alan xO” Wt 2oaoe FF. IONGOO « _ Nev- 8 .206695.13 « | Fpectsel_wov - 0-3 (200698. 13) 46. 350101846 48) 4 6.25 « C nyat.s3) > _& 1S1661.55 < _ 5) (206596 -13~ 15.9661-55)* (0.3) tC 11996. 48 - IS WL. 55) (0.26) + (_111197-83 - 159661-55)* (0.35) « 2 1aagessng = B 35967. 93 eve 2SA6T83 2g 29.262 (AGC 6S ecl should cepted be coue tht expected | Ney_is ive 1-20 (CE, = _=Ttooco + 55000 -[( 411600 «- 55000) x b- 4) 2=$ 120000 Icy Depreciation tax savings: 14 [(0-33x Roocg) — 9500] xo-4 = (ata) (qouo 1 Co.'Gx IZo000) - $500) x0-4 = Kamo 21200 Ye: L(0- 15 x 1p-0000) - $600] y 6.4 = @8eu 6800 Yu: [0.07 x \p0000) - $5001 x0.4= xe 1360 Ye :(@ - 2600) y ou = -omyad — SucD Cash Flows CPy = (40009 x 0.6) 1 dpdiyiyae, INOYO = UZ040 Cf, Aroou + ere A10o = 61200 CF, = A4ouu 4 6800 = 30800 (fy 2 AY4ov 1 60 = 25360 Primeday /date for CF, Opevahmal CF = Augoo ~ 3406 = 20600 Salvag odue ¢ O Oc of Ad _qachine = !5000 Tax_savieg om sale of old madi = (iMoboyo.u) = 6060 CF, = 20600 + 6000 -Ifgoo = ‘Nba 0 co) N@ve @ 11869-3F benw the preject should be accipked 12-21 lew Ch = -N1S0004 265000 + (( 265000 @ bo0a00) x04) = = T1bo00 tb) Differeneer in annual dlepn expense. Y, + (0.20 x NK000) — Weooo = 15000 y, - (0.32 x N1fe00) — 120000 = 256000 Ye + ( 0:19 X I118000) - 120000 — 103250 Yu: (0-12 x IITS000) - 120006 _ 21000 Ye: (o- Nx N000) ~ 120000 = 450 tea Incrementad cath flows fee Chg assood’? Ji$000 (029) = Uigenoas Bekeastrs CE, 2 152000 + 956000 (eed) = efits Auaboo Cy: 153000 +_ 103250 Coait) = bate (89 137-8 CEy: 183000 + Alooo Cen) = fdattwwo [60350 CE. + 162000 + 9850 (#21) = hehe) 156a87.5 Salvage ¢ keene + |45000 Tax_on on (1uS900-To$00) xo.85 ~~ — AGO TE CE, = be a7S162.5 (Ney = = 1741.87 hence veject the prajecl,