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Answers%209 - Chapter 9 Cash Flow and Capital Budgeting...

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228 Chapter 9 Cash Flow and Capital Budgeting Answers to End-of-Chapter Problems Types of Cash Flows A9-1. Depreciation A/T ($) Present Values ($) 3 7 20 a. 3 b. 7 c. 20 PV of Depr. Tax Savings $1,414,802 $1,226,481 $752,087.6 A9-2. End of Year Depr. % Depr. PV Depr. Depr. w/o Exp. PV Depr. w/o Exp. $8,532,396 $8,710,489 depreciate expense The present value of the write-offs when treating the installation cost as an initial expense is $178,093 ($8,710,489 – $8,532,396), greater than had the installation cost be included in the de- preciable base. A9-4. Year: 1 2 3 4 5 6 Earnings $ 378,000 $ 90,000 $ 397,200 $ 581,520 $ 581,520 $ 719,760 Inc. opr. CFs (Earn + Depr) $1,178,000 $1,370,000 $1,165,200 $1,042,320 $1,042,320 $ 950,160 a. $2,200,800 × (1 – .35) = $1,430,000 each year b. See earnings line in table above. c. See inc. opr. CFs line in table above. A9-5. Year 0 1 2 3 4 5 6 Inc. opr CFs (Earn + Depr) $20,160 $23,616 $19,930 $17,718 $17,718 $ 1,659 A9-6. a. New Machine 0 1 2 3 4 5 6 Inc. opr CFs (Earn + Depr) $ 7,600 $ 9,160 $ 8,720 $ 8,760 $ 9,360 $ 400
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Chapter 9 Cash Flow and Capital Budgeting 229 Old Machine 0 1 2 3 4 5 6 Inc. opr CFs (Earn + Depr) $ 6,000 $ 6,000 $ 6,000 $ 6,000 $ 6,000 0 b. Incremental operating cash flows Year 0 1 2 3 4 5 6 New Machine $7,600 $9,160 $8,720 $8,760 $9,360 $400 – Old Machine 6,000 6,000 6,000 6,000 6,000 0 Difference $1,600 $3,160 $2,720 $2,760 $3,360 $400 A9-7.
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