Ch8 Problem 26 solution - Depreciation -840 000 -840 000...

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OLD machine PROBLEM 36 CHAPTER 8 BV= 1 100 000 i=12% Taxes=34% 0 1 2 3 4 5 Salvage value - 1800 000 Tax (34%) 238 000 (opportunity costs) -1 562 000 Salvage value 175 000 (after-tax 115 500) Maintenance cost -750 000 -750 000 -750 000 -750 000 -750000 Depreciation -220 000 -220 000 -220 000 -220 000 -220 000 EBT - 970 000 Taxes (34%) - - 329 800 NI -640 200 OCF -420 200 NPV= - 1 562 000 – 1 514 726, 96 * + 65 537 * = - 3011189, 96 1
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NEW machine i=12% Taxes=34% 0 1 2 3 4 5 Investment - 4 200 000 Salvage value 600 000 (after-tax 396 000) Maintenance cost -265 000 -265 000 -265 000 -265 000 -265 000
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Unformatted text preview: Depreciation -840 000 -840 000 -840 000 -840 000 -840 000 EBT - 1 105 000 Taxes (34%) - - 375 700 NI -729 300 OCF 110 700 NPV= - 4 200 000 – (- 399 948,73 * ) + 224 701 * = - 3 576 250,27 DECISION: Keep old machine 2 Since it has less negative NPV OLD machine NEW machine CASH CMPD CASH CMPD I=12% n=5 i=12% n=5 0 i=12% i=12% 420 200 PV=?- 110 700 PV=? 420 200 PMT=0- 110 700 PMT=0 420 200 FV= 115 500- 110 700 FV= 396 000 420 200 PV= 65 537-110 700 PV= 224 701 420 200- 110 700 NPV= ? NPV=? NPV= - 1 514 726, 96 NPV= - 399 048,73 3...
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This note was uploaded on 03/11/2012 for the course ECON 107 taught by Professor Callahan during the Spring '12 term at London College of Accountancy.

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Ch8 Problem 26 solution - Depreciation -840 000 -840 000...

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