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Structured Finance Project Week 5

# Structured Finance Project Week 5 - Structured Finance...

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Structured Finance Project Week5

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11-7. New-Project Analysis a) What is the net cost of the spectrometer (What is the Year-0 net cash flow?) 1. Data: Depreciable basis: \$85,000 T = 40% = 0.4 MACRS percentage allowances are 0.33 for the first year 0.45 for the second year 0.15 for the third year Calculations: Price: \$-70,000 Modification: \$-15,000 Change in Net Working Capital \$ -4,000 Total Investment: \$ -89,000 Ans. The Net cost of the spectrometer is \$ -89,000.
b) What is the net operating cash flow in Year 1, Year 2 and Year 3? YEAR 1 1. After-tax cost savings: 25,000 * (1-T) = 25,000 * (1-0.4) = 15,000 2. Depreciation: Year 1: 0.33 * Depreciable basis = 0.33 * 85,000 = \$28,050 3. Depreciation Tax Savings: T * (depreciation) = 0.4 * 23,100 = \$11,220 Operating Cash Flow for the YEAR 1 = 15,000 + 11,220 = \$26,220 YEAR 2 1. After-tax cost savings: 25,000 * (1-T) = 25,000* (1-0.4) = 15,000 2. Depreciation: Year 1: 0.33 * Depreciable basis = 0.45 * 85,000 = \$38,250 3. Depreciation Tax Savings: T * (depreciation) = 0.4 * 38,250 = \$15,300

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Structured Finance Project Week 5 - Structured Finance...

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