-
Ch06 Assignment.xls Download Attachment
2)
Nikki Schiesser Jones
Chapter 6, p195
Year 0
Investment
Revenue
Op Costs
Depreciation
Net wk Cap Spendg
a.
b.
c.
Year 1
Year 2
Year 3
Year 4
$16,000
$200
$8,500
$1,900
$4,000
$250...2)
Nikki Schiesser Jones
Chapter 6, p195
Year 0
Investment
Revenue
Op Costs
Depreciation
Net wk Cap Spendg
a.
b.
c.
Year 1
Year 2
Year 3
Year 4
$16,000
$200
$8,500
$1,900
$4,000
$250
$9,000
$2,000
$4,000
$300
$9,500
$2,200
$4,000
$200
$7,000
$1,700
$4,000
?
incremental net income each year
?
incremental cash flows each year
?
NPV
$41,975 ?
9)
Investment
Revenue
Op Costs
Depreciation
Net wk Cap Spendg
NPV
Year 0
Year 1
Year 2
Year 3
Year 4
$1,800,000,000
$1,100,000,000 $1,100,000,000 $1,100,000,000 $1,100,000,000
$275,000,000
$275,000,000
$275,000,000
$275,000,000
$450,000,000
$450,000,000
$450,000,000
$450,000,000
$150,000 ?
?
?
?
(Additional networking capital will be recovered in full at the end of project cycle)
Corporate tax rate @ 35%
Required rate of return is 16%
Should company exceed with project?
?
NPV=cost+OCF(pv)+(salvage value/1+rate 4)
pv = 1- 1/1+rate 4 / rate
10)
You are evaluating 2 different wafer milling machines
Techron I costs 270k has 3 yr life cycle & has pretax operating
costs of 45k per yr. Techron II costs 370k, has 5 yr life cycle & pre-tax
operating costs of 48k. Both use straight line depreciation to zero over the project's life
and assume a salvage value of 20k. If tax rate is 35% & discount rate is 14%
Should the company buy and install the machine press?
Create spreatsheet to quantify answer.
15)
Cash flows on two mutually exclusive projects:
Year
Project A
Project B
0
-$50,000
-$65,000
1
$30,000
$29,000
2
$25,000
$38,000
3
$20,000
$41,000
The cash flows of project A are expressed in real terms,
whereas those of project B are in nominal terms. The appropriate
nominal discount rate is 15% and the inflation rate is 4%.
Which project should be chosen?
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Thanks,
Nikki
-
6383442.xlsx Download Attachment
15)
Conversion of real cash flows into nominal/money cash flows of project A
10)
Statement of computation of Equivalized annual cost (EAC)
9)
Year
particulars
Investment
Net wk Cap Spendg
Cash...15)
Conversion of real cash flows into nominal/money cash flows of project A
10)
Statement of computation of Equivalized annual cost (EAC)
9)
Year
particulars
Investment
Net wk Cap Spendg
Cash flow after taxes
working capital realised
Net cash flows
Present value factor @ 16%
Present value of cash flows
Net present Value(NPV)
(Outflow-present value of inflows)
2)
Year 0
Year 0
Cash flows-Project A
0
1
2
3
Nominal cash flows
Real cash flows*(1+inflation rate)
techron I
Cash outflow
0
Pretax operating costs
Less tax @ 35%
After tax opertaing costs
1 to 3 years
Tax saving on depreciation
1 to 3 years
Total Cost
EAC
Total Cost/Present value of annuity for 3 years)
-$52,000
$31,200
$26,000
$20,800
-$50,000
$30,000
$25,000
$20,000
Year
Computation of NPV
Outflow-present value of inflow
270000
45,000
15750
29,250
-31500
267,750
115359.758724688
Year 1
Year 2
Year 3
Year 4
-$1,800,000,000
-$150,000
$693,750,000
-$1,800,150,000
1
-$1,800,150,000
$693,750,000
0.862
$598,012,500
$693,750,000
$693,750,000
0.743
$515,456,250
$693,750,000
$693,750,000
0.641
$444,693,750
$693,750,000
$150,000
$693,900,000
0.552
$383,032,800
$141,045,300
Computation of cash flow after taxes:
cash flows-Project A
Present value factor @15%
Present value
cash flows-Project B
Present value
Year
Year 0
particulars
0
1
2
3
-$52,000
$31,200
$26,000
$20,800
NPV
Conclusion: Since project B has highest NPV, so it should be chosen
1
0.870
0.756
0.658
-$52,000.00
$27,130.43
$19,659.74
$13,676.34
$8,466.51
-$65,000
$29,000
$38,000
$41,000
$(65,000.00)
$25,217.39
$28,733.46
$26,958.17
$15,909.02
Year
370000
48000
16800
31,200
-25900
375,300
109353.146853147
Conclusion: Project Techron II should be chosen as it has lower Equivalized Annual Cost
Revenue
Op Costs
Depreciation
Profit before tax
tax @ 35%
Profit after tax
Add:
Depreciation
Cash flow after... View Full Attachment Show more
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