Week 5 Woodruff Problem

Week 5 Woodruff Problem - Purchase Price $230,000.00 Cost...

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3 years prior OLD Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year Depreciation Base % Depreciation Annual Depreciation EBDT $25,000.00 $16,000.00 $9,000.00 $8,000.00 $6,000.00 $(7,000.00) 1 $230,000 0.200 $46,000.00 Gain on Sale of Old Equip 90,000.00 2 $230,000 0.320 $73,600.00 Depreciation (4th year) 26,450.00 3 $230,000 0.192 $44,160.00 Earnings Before Taxes 88,550.00 4 $230,000 0.115 $26,450.00 Taxes (36%) 31,878.00 5 $230,000 0.115 $26,450.00 Earnings After Taxes 56,672.00 6 $230,000 0.058 $13,340.00 . + Depreciation 26,450.00 $230,000.00 Cash Flow $83,122.00 NEW Year Depreciation Base % Depreciation Annual Depreciation Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 1 $320,000 0.200 $64,000.00 EBDT 2 $320,000 0.320 $102,400.00 Depreciation $64,000.00 $102,400.00 $61,440.00 $36,800.00 $36,800.00 $18,560.00 3 $320,000 0.192 $61,440.00 Earnings Before Taxes 4 $320,000 0.115 $36,800.00 Taxes (36%) 5 $320,000 0.115 $36,800.00 Earnings After Taxes 6 $320,000 0.058 $18,560.00 . + Depreciation $320,000.00 Cash Flow From Selling Old Equipment
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Unformatted text preview: Purchase Price $230,000.00 Cost of New Equipment $320,000.00 3 years Depreciation 163,760.00 Minus Cash Flow from Sale $90,000.00 Book Value $66,240.00 Net Cost of New Equipment $230,000.00 Sales Price $90,000.00 Taxable Gain $23,760.00 Analysis of Incremental Depreciation Benefits Year Dep on New Equip Dep on Old Incremental Depreciation Tax Rate Tax Shield Benefit 1 $64,000.00 $26,450.00 $37,550.00 36% $13,518.00 2 $102,400.00 $26,450.00 $75,950.00 36% $27,342.00 3 $61,440.00 $13,340.00 $48,100.00 36% $17,316.00 4 $36,800.00 $- $36,800.00 36% $13,248.00 5 $36,800.00 $- $36,800.00 36% $13,248.00 6 $18,560.00 $- $18,560.00 36% $6,681.60 Analysis of Incremental Cost Savings Benefit Year Cost Savings 1-Tax Rate After Tax Savings 1 2 3 4 5 6 Present Value of the Total Incremental Benefits Year Dep on New Equip Dep on Old Incremental Depreciation Tax Rate Tax Shield Benefit 1 2 3 4 5 6...
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This note was uploaded on 02/25/2012 for the course FINANCE 410 taught by Professor Conway during the Spring '12 term at Regis University.

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