Calculate the ARR

ARR= average annual profit / initial investment

Year 0 (Original Investment) $6,000,000 *(Cost of New Machine-Estimated Salvage Value)/# years=Straight Line Depreciation -$6,904,000 ($6000000-$50000)/8 Years= $743750 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 $6,000,000 8 years $100,000 -$100,000 $100,000 $100,000 $100,000 $100,000 -$100,000-$100,000-$100,000 ** Depreciation* tax rate=Tax Savings $743750*20%=$148750 -$16,000 -$16,000 -$16,000-$16,000 -$40,000 $700,000 $700,000 $700,000 $4,140,000 Alternative 1 Cost of New Machine Estimated Useful Life Operating Costs each year Warranty covers years 1-4 Maintenance Years 5-10 Training of employees Expected Revenue generated years 1-3 Expected Revenue generated years 4-6 Expected Revenue generated years 7-10 Estimated Salvage Value Use straight line depreciation to include tax savings from depreciation* Tax rate 20%** CASH FLOW Avg Cash Flow over 9 Years= Sum(Year1 to Year 8)/8 $16,000 $40,000 $700,000 $200,000 $100,000 $50,000 $743,750 $200,000 $200,000 $200,000 -$3,140,363.64 $100,000 $100,000 $50,000 $148,750 $148,750 $148,750 $148,750 $148,750 $148,750 $148,750 $148,750 $748,750 $148,750 $6,040,000 $409,500 IRR in Cell D30 for Alt 1. -16% $748,750 $748,750 $248,750 $232,750 $232,750 $132,750 $182,750