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Dudley - Dudley Capital Budgeting Assignment Basic...

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Dudley Capital Budgeting Assignment: Basic Information: Machine Cost: $40, 000 Useful Life: 10 years Increased Revenue of: $18, 000 Labor Savings: $2, 000 Maintenance: $5, 000 Note: Since there is no residual value, the machine will be depreciated using the straight- line method; at $4, 000 per year Debt and Equity Numbers Debt 33% 14% 4.62% SE 67% 11% 7.37% Cost of Capital 12% 1) In this situation, the machine will be financed using a 12% loan from First National Bank. The loan requires four equal installment payments plus interest. NPV of Loan from Bank: Yr 1 10000 4800 14800 Yr 2 10000 3600 13600 Yr 3 10000 2400 12400 Yr 4 10000 1200 11200 NPV of Machine: Yr 1 200 0.892857 178.5714 Yr 2 1400 0.797194 1116.072 Yr 3 2600 0.71178 1850.628 Yr 4 3800 0.635518 2414.968 Yr 5 15000 0.567427 8511.405 Yr 6 15000 0.506631 7599.465 Yr 7 15000 0.452349 6785.235 Yr 8 15000 0.403883 6058.245 Yr 9 15000 0.36061 5409.15 Yr 10 15000 0.321973 4829.595 NPV $44753.33 In this situation, for the first four years the NPV from the loan of the bank has already been calculated into the equation, leaving a a total NPV of $44, 753.33
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2) In this situation, the financing for the machine will be done by issuing 5 year
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