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

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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%
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Chapter 7 Question 12 Input area: System A: Cost $430,000 Pretax annual operating cost
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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....
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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.

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

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