стр. 105 
flows:
Year Cash Flow ($)
0 (3L000)
1 10,000
2 20,000
3 10,000
4 10,Ooo
5 5,Ooo
Compute the: (1)payback period; (2) net present value (NPV) at 14percent cost of capital;
(a)
and (3) internal rate of return (IRR).
( 6 ) Based on (2) and (3) in part (a),make a decision about the investment. Should it be accepted
or not?
224 CAPITAL BUDGETING (INCLUDING LEASING) [CHAP. 8
SOLUTION
(1) The payback period is computed as follows:
(a)
Recovery of Initial Outlay
Cash Flow
Year Needed Balance Payback Period
1 $10,000 $31,000 $21,000 1.OO
2 $20,000 $21,000 $ 1,000 1.oo

0.10
3 $10,000 $ 1,000

2.1"
"Payback period in years
(2) NPV is computed as follows:
pv 6)
PV Factor at 14%
Cash Flow ($)
Year
0 1.Ooo
(31,000) (31,000)
10,000 0.8772
1 8,772
2 20,000 0.7695 15,390
3 10,000 0.6750 6,750
4 10,000 0.5921 5,921
0.5194 2,597
5 5,OOO
NPV 8,430
(3) By definition, IRR is the rate at which PV = I or NPV = 0. From part (2), NPV at 14% = $8,430.
Try 30 percent to determine what happens to NPV.
pv ($1
Cash Flow ($) PV Factor at 30%
Year
ow
0 (31, (31,000)
1.ooo
10,Ooo 0.7694 7,694
1
20,000
2 0.5921 11,842
3 10,Ooo 0.4558 4,558
4 10,Ooo 0.3509 3,509
5 5,000 0.2702 1,351
(2,046)
True IRR is somewhere between 14 percent and 30 percent. Use interpolation to determine the
amount.
NPV
14% $8,430 $ 8,430
True rate 0
30yo ( 2,046)
$8,430 $10,476
Difference I
225
CAPITAL BUDGETING (INCLUDING LEASING)
CHAP. 81
Therefore,
IRR = 14% + (30%  14%)
$89430
$8,430  ($2,O46)
$8 430
= 14% +  (16%) = 14% + 12.875% = 26.875%
$10,476
(b) Under the NPV method, accept the project since the NPV is positive ($8,430). Under the IRR method,
accept the project since the IRR of 26.875 percent exceeds the cost of capital of 14 percent.
Comprehensive Capital Budgeting Decision. The Chellin Company purchased a special machine
8.8
1year ago at a cost of $12,000. At that time the machine was estimated to have a useful life of
6 years and no salvage value. The annual cash operating cost is approximately $20,000. A new
machine has just come on the market which will do the same job but with an annual cash
operating cost of only $17,000. This new machine costs $21,000 and has an estimated life of 5 years
with zero salvage value. The old machine can be sold for $lO,OOO to a scrap dealer. Straightline
depreciation is used, and the companyвЂ™s income tax rate is 40 percent.
Assuming a cost of capital of 8 percent after taxes, calculate: ( a ) the initial investment; ( b )
the incremental cash inflow after taxes; (c) the NPV of the new investment; and ( d )the IRR on
the new investment.
SOLUTION
(a) The initial investment is:
Cost of new machine $21,000
 Proceeds from sale of old machine 10,000
$11,000
Since the selling price ($lO,OOO) is the same as the book value ($12,000  $2,000 = $lO,OOo), no
taxable gain or loss results.
(b) The incremental cash inflow may be computed by using the shortcut formula:
Annual cash savings
[$3,000X (1 0.4)] $1,800
+ lncrease in depreciation X tax rate
[($4,200 $2,000)(0.4)] 880
Aftertax cash inflow $2,680
NPV = PV  I
= $2,68O(PVIFAa,s) $11,OOO = $2,680(3.9927) $11,OOO
= $10,700  $11,0oO = $300 (rounded)
(d) IRR is the rate at which I = PV. Thus,
$11,000
= 4.1045
стр. 105 