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fmpp-4e-sp-11-1 - Student instructions This worksheet is...

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PROBLEM 11-6 Rhodes Manufacturing Corporation Given: Initial Cost of new Equipment $375,000 End of year: 1 2 3 4 Earnings Before Depreciation and Taxes (EBDT) $120,000 $90,000 $70,000 $70,000 Discount rate 13% Tax rate 40% Year 1 2 3 4 MACRS depreciation percentages for five-year class 20.00% 32.00% 19.20% 11.50% life equipment Calculations: Incremental Cash Flows: Year 1 2 3 4 EBDT $120,000 $90,000 $70,000 $70,000 New depreciation expense 75,000 120,000 72,000 43,125 Change in Operating Income 45,000 (30,000) (2,000) 26,875 Income tax on new income 18,000 (12,000) (800) 10,750 Change in earnings after tax 27,000 (18,000) (1,200) 16,125 Add back depreciation 75,000 120,000 72,000 43,125 Net incremental operating cash flows $102,000 $102,000 $70,800 $59,250 Present value of cash flows $90,265 $79,881 $49,068 $36,339 Total present value of cash flows $312,064 Less initial cost $375,000 = NPV ($62,936) Student instructions: This worksheet is for problem 11-6. Information necessary to solve the pro below in the section marked "given." Below, in the section marked "calculations," enter formulas where indicated to complete the calculations needed to answer the question. Click on the text bo comments.
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Comments: yes he should, theirs a postive NPV, and it would be beneficial to his company. No he shouldn't take this project because, theirs a negative NPV, and it would effect negatively.
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5 6 $70,000 $70,000 5 6 11.50% 5.80% 5 6 $70,000 $70,000 43,125 21,750 26,875 48,250 10,750 19,300 16,125 28,950 43,125 21,750 $59,250 $50,700 $32,159 $24,352 oblem is listed in the blanks ox to enter your
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t him
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PROBLEM 11-7 Rhodes Manufacturing Corporation (with salvage value) Given: Initial Cost of new Equipment $375,000 End of year: 1 2 3 4 Earnings Before Depreciation and Taxes (EBDT) $120,000 $90,000 $70,000 $70,000 Discount rate 13% Tax rate 40% Year 1 2 3 4 MACRS depreciation percentages for five-year class 20.00% 32.00% 19.20% 11.50% life equipment Resale value of equipment $50,000 at the end of the sixth year Calculations: Incremental Cash Flows: Year 1 2 3 4 EBDT $120,000 $90,000 $70,000 $70,000 New depreciation expense 75,000 120,000 72,000 43,125 Change in Operating Income 45,000 (30,000) (2,000) 26,875 Income tax on new income 18,000 (12,000) (800) 10,750 Change in earnings after tax 27,000 (18,000) (1,200) 16,125 Add back depreciation 75,000 120,000 72,000 43,125 Net incremental operating cash flows $102,000 $102,000 $70,800 $59,250 Resale value o Less incom Net cash flow from eq Total Net cash flows $102,000 $102,000 $70,800 $59,250 Student instructions: This worksheet is for problem 11-7.
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