стр. 115 |

Reduction in labor cost

$16,500

Reduction in breakage

4,800

Increase in electricity costs

-1,200

Increase in repair and maintenance cost

-900

$19,200

CAPITAL BUDGETING (INCLUDING LEASING) [CHAP. 8

244

Initial amount of investment is:

2.

+ $5,000

$75,000 = $80,000

10%PV

Amount of

Year(s) Having

PV

Cash Flows Cash Flows Factor

Initial investment Now $( S0,OOO)

1.WO

$(80,000)

Annual cash inflows: $19,200

X60%

11,520 5.335 61,459.20

1-8

After-tax cash inflow: $11,520

Depreciation deductions:

Tax

MACRS

Shield

Depreciation

Cost

Year O/O

$ 5,817.60

$ 6,400 0.909

20.0 $16,000

$80,000

1

10,240 0.826 8,458.24

32.0 25,600

80,000

2

6,144 0.751 4,614.14

19.2 15,360

80,000

3

3,680 0.683 2,513.44

11.5 9,200

80,000

4

3,680 0.621 2,285.28

11.5 9,200

80,000

5

1,856 0.564 1,046.78

5.8 4,640

80,000

6

$24,735.48

Salvage value, fully taxable since book value will be zero:

$5,000

8 3,000 0.467 1,401.OO

X60%

$3,000

Net present value $ 7,595.68

The JKS Corporation should buy and install the conveyor, since it brings a positive NPV.

NPV Analysis. The JS Company is considering buying a machine at a cost of $800,000, which has

8.30

the following cash flow pattern. No residual value is expected. Depreciation is by straight-line.

Assume that the income tax rate is 40%, and the after-tax cost of capital (minimum required rate

of return) is 10%. Should the company buy the machine? Use the NPV method.

Cash Cash

outflow,

Inflow,

(1) (2)

Year

1 $800,000 $550,000

2 $790,000 $590,000

3 $920,000 $600,000

4 $870,000 $610,000

5 $650,000 $390,000

245

CAPITAL BUDGETING (INCLUDING LEASING)

CHAP. 81

SOLUTION

Net cash flow after taxes calculation

Net

Cash Flow

Depreciation Net Net

Net

Income After

Income Income

(Noncash

Cash Flow

Taxes,

Taxes After

Before

Expense)

Before

Cash

Cash

Taxes,

Taxes, (6)=0.4X,

Taxes, (4)=0.2X,

outtlow, (8)=(3) -(6)

Inflow,

Year (1) (5) =(3) -(4)

8WOOo or (7)+(4)

(5) (7)=(5)-(6)

(3)=(1)-(2)

(2)

$214,O(K)

$ 90,()OO

$160,000 $54,000

$36,(K)O

$250,000

$550,000

1 $800,000

$184,000

$16,000 $24,000

$ 40,000

$160,000

$200,000

2 $790,o(x) $59O,O()O

$256,000

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