Solutions 7-6 &amp; 12

# Solutions 7-6 &amp; 12 - \$120,000 Life 4 System B: Cost...

This preview shows pages 1–2. Sign up to view the full content.

Chapter 7 Question 6 Input area: Initial investment \$925,000 Pretax salvage value \$90,000 Cost savings per year \$360,000 Working capital reduction \$(125,000) Tax rate 35% *Depreciation straight-line over life 5 Output area: Annual depreciation charge \$185,000 Aftertax salvage value \$58,500 OCF \$298,750 Year Cash flow 0 \$(800,000) 1 \$298,750 2 \$298,750 3 \$298,750 4 \$298,750 5 \$232,250 IRR 23.85%

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Chapter 7 Question 12 Input area: System A: Cost \$430,000 Pretax annual operating cost
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: \$120,000 Life 4 System B: Cost \$540,000 Pretax annual operating cost \$80,000 Life 6 Both: Tax rate 34% Discount rate 20% *Depreciation staight-line Output area: System A: OCF \$(42,650) NPV \$(540,409.53) System B: OCF \$(22,200) NPV \$(613,826.32) If the system will not be replaced when it wears out, then System A should be chosen, because it has the more positive NPV....
View Full Document

## This note was uploaded on 07/24/2009 for the course FIN FIN taught by Professor Robbani during the Spring '09 term at University of Maryland Baltimore.

### Page1 / 2

Solutions 7-6 &amp; 12 - \$120,000 Life 4 System B: Cost...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online