Homework Answers
| Time line | 0 | 1 | 2 | 3 | 4 | 5 | |||
| Cost of new machine | -675000 | ||||||||
| Initial working capital | -51000 | ||||||||
| =Initial Investment outlay | -726000 | ||||||||
| 100.00% | |||||||||
| Depreciation | Cost of equipment/no. of years | -135000 | -135000 | -135000 | -135000 | -135000 | 0 | =Salvage Value | |
| =after tax operating cash flow | 187600.00 | 187600.00 | 187600 | 187600 | 187600 | ||||
| reversal of working capital | 51000 | ||||||||
| +Proceeds from sale of equipment after tax | =selling price* ( 1 -tax rate) | 117650 | |||||||
| +Tax shield on salvage book value | =Salvage value * tax rate | 0 | |||||||
| =Terminal year after tax cash flows | 168650 | ||||||||
| Total Cash flow for the period | -726000 | 187600.00 | 187600.00 | 187600.000 | 187600 | 356250 | |||
| Discount factor= | (1+discount rate)^corresponding period | 1 | 1.15 | 1.3225 | 1.520875 | 1.7490063 | 2.0113572 | ||
| Discounted CF= | Cashflow/discount factor | -726000 | 163130.4348 | 141852.552 | 123350.0452 | 107260.91 | 177119.21 | ||
| NPV= | Sum of discounted CF= | -13287 | |||||||
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