Because the proposal had a positive net present value when discounted at Bayside's cost of capital of 12 percent, the project was approved; all investments were made at the end of 2016. Shortly after production began in January 2017, a government agency notified Bayside of required additional expenditures totaling $200,000 to bring the plant into compliance with new federal emission regulations. Bayside has the option either to comply with the regulations by December 31, 2017, or to sell the entire operation (fixed assets and working capital) for $250,000 on December 31, 2017. The improvements will be depreciated over the remaining four-year life of the plant using straight-line depreciation. The cost of site restoration will not be affected by the improvements. If Bayside elects to sell the plant, any book loss can be treated as an offset against taxable income on other operations. This tax reduction is an additional cash benefit of selling.

Calculate the Present Value of Selling Plant (in Excel):

MBA 6203 - Case 12-40 - Template - Excel Sign in X File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do Share do Cut AutoSum . Calibri 11 AA aD Wrap Text General AY O BB Copy Fill - Paste Merge & Center - Conditional Format as Cell Insert Delete Format Sort & Find & BIU. $ - % " Format Painter Formatting * Table Styles Clear Filter . Select Clipboard Font Alignment Number Styles Cells Editing F7 X V A B C D E F G H J K L M N 0 P Q R S T U Present Value of Selling Plant at 12/31/2017 Cash from sale of plant 250,000 Tax shield of loss on sale: Selling Price Book Value Loss on sale 8 Tax shield Proceeds from selling plant 250,000 10 11 15 Present Value of Additional Investment Predicted 12% Present Present Cash Year(s) of Valu Value of Inflows Cash Flows Factor Cash Flows 13 (outflows) (B) [C] (A) x (C) 14 Initial investment 15 Fixed assets 16 Operations 17 Annual taxable income wto depreciation Taxes on income ($310,000 * 0.40) Depreciation tax shield - original 20 Depreciation tax shield - additional Disinvestment Site restoration Tax shield of restoration ($80,0000 : 0.40) 24 Working capital 25 Net present value of all cash flows 26 27 "With the exception of Year(s) of Cash Flows and 12%% Present Value Factor, you should enter 28 formulas with cell references - NO HARD-KEYED NUMBERS 29 30 2015 Analysis New Federal Regulations + Ready - - + 70% 8:07 PM x ] 5/2/2021In 2015. the Bityside Chemical Company prepared the following: analysis of an investment proposal for a new manufacturing facility: Predicted Cash Year(s) Present Inflows of Cash Value of (outflows) Flows Cash Flows (A) (B) W (C) Initial investment Fixed assets .......................... $(810,000) 0 1.00000 5 (810,000) Working capital ........................ (100,000) 0 1 .00000 (100,000) Operations Annual taxable income without depreciation ................ 310.000 1-5 3.60478 1 ,117,482 Taxes on income ($310,000 x 0.40) ........ (124,000) 15 3.60478 (446,993) Depreciation tax shield .................. 64,800" 15 3.60478 233,590 Disinvestment Site restoration ........................ 80,000 5 0.55743 (45,394) Tax shield of restoration ($30,000 X 0.40) . . . 32,000 5 0.58743 18,158 Working capital ........................ 100,000 5 0.56743 56,743 Net present value of all cash flows ........................................... $ 23,586 'Ccmputation of depreciation tax shield: Annual straight-line depreciation ($810,000 + 5) .............. $162,000 Tax rate .............................................. x 0.40 Depreu'aan mm .................................. $ 64,800