Case solution Transmissions_11Spring

Case solution Transmissions_11Spring - 20,172 15,613 OCF...

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0 1 2 3 4 Price of new machining system 125,000 7-year MACRS factors 14.29% 24.49% 17.49% 12.49% Depreciation 17,863 30,613 21,863 15,613 Book value 107,138 76,525 54,663 39,050 Market value in terminal year 50,000 Original cost of old machine 38,000 Book value today 8,478 Remaining depreciation factors 8.93% 8.93% 4.45% Remaining depreciation 3,393 3,393 1,691 Market value today of old machine 3,000 Cash flows from operations 0 1 2 3 4 Incremental sales revenue 8% 35,000 37,800 40,824 44,090 Incremental cost savings 10% 8,000 8,800 9,680 10,648 Depreciation foregone on old machine 3,393 3,393 1,691 0 Depreciation on new machine (17,863) (30,613) (21,863) (15,613) Net depreciation (14,469) (27,219) (20,172) (15,613) EBIT 28,531 19,381 30,333 39,125 Tax on EBIT 39% (11,127) (7,559) (11,830) (15,259) Depreciation 14,469 27,219
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Unformatted text preview: 20,172 15,613 OCF 31,873 39,041 38,674 39,479 Net working capital in place 15% 3,000 5,250 5,670 6,124 0 NWC cash flows (3,000) (2,250) (420) (454) 6,124 Capital spending cash flows Sale of old machine 3,000 Book value 8,478 Gain/Loss over book value (5,478) Tax on gain/loss 2,136 Net cash from sale 5,136 Purchase of new machining system (125,000) Market value of new machining system 50,000 Book value 39,050 Gain/Loss over book value 10,950 Tax on gain/loss (4,271) Net cash from sale 45,730 Capital spending cash flows (119,864) 45,730 Total cash flow from assets (122,864) 29,623 38,621 38,221 91,332 Cost of capital (discount rate) 15% NPV 9,449 IRR 18.1% Accept the project, since NPV is positive and IRR is greater than the cost of capital....
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This note was uploaded on 03/15/2012 for the course BUS-F 301 taught by Professor T during the Spring '12 term at IUPUI.

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