Big Problem 2 Chase Dusek.xlsx - Alternative 1- Renew...

Alternative 1- Renew Existing Machine
Given
Old-MV (Present) $20,000.00
Old-BV(Present) $0.00
Renew Cost (5 years) $90,000.00
Old-MV (5 years) $2,000.00
Renewed-MV (5 years) $8,000.00
Net working capital (increase) $15,000.00
Corporate Tax rate 40%
Cost of capital 15%
Year Revenue
Expenses
(excl. depr. and int.)
1 $1,000,000 $801,500
2 $1,175,000 $884,200
3 $1,300,000 $918,000
4 $1,425,000 $943,100
5 $1,550,000 $968,100
Year (original projection)
1 $100,000
2 $150,000
3 $200,000
4 $250,000
5 $320,000
Initial Outlay
Cost of renewing $90,000.00
Increase in working capital $15,000.00
CF(0) -$75,000.00
Net operating profit
after taxes (NOPAT

Depreciation
Year 1 Year 2 Year 3 Year 4
Dep. Basis $90,000.00 $90,000.00 $90,000.00 $90,000.00
MACRS % 20% 32% 19% 12%
Net Depreciation $18,000.00 $28,800.00 $17,100.00 $10,800.00
NOPAT- Alternative 1
$108,300.00 $157,200.00 $218,940.00 $282,660.00
On-going Cash Flow
Change in NOPAT $8,300.00 $7,200.00 $18,940.00 $32,660.00
Add Depreciation $18,000.00 $28,800.00 $17,100.00 $10,800.00
On-going CF $26,300.00 $36,000.00 $36,040.00 $43,460.00
Terminal Value
Accounting Cash Flow
Renewed-Market value $ 8,000.00 8,000
Renewed-Book value $ 5,400.00
Gain on sale $ 2,600.00
Tax Rate 40%
Tax on Gain $1,040.00
Decrease in Working Capital $15,000.00
Terminal value $ 21,960.00
Time line for CF
CF(0) -$75,000.00
CF(1) $26,300.00
CF(2) $36,000.00
CF(3) $36,040.00
CF(4) $43,460.00
CF(5) $55,060.00
NPV
$51,010.57

Year 5 Year 6
$90,000.00 $90,000.00
11% 6%
$9,900.00 $5,400.00 $90,000.00
$343,200.00
$23,200.00
$9,900.00
$33,100.00

Alternative 2- Replace Existing Machine
Given
Old-MV (Present) $20,000.00
Old-BV(Present) $0.00