CAPITAL BUDGETING WITH INCOME TAXES Montreal Paper Company must purchase a paper sorter to replace its existing one on January 1, 2022. This is an essential investment because manual sorting is too demanding and causes physical problems for employees. Two models that would adequately meet the company's needs are the price and Allen models. Information related to each model includes: $ $ $ Cost of machines Working Capital needed Salvage value Life - years Annual savings of operating costs CCA Income Tax rate After-tax Cost of capital Price 53,700 $ 20,000 $ $ 8 24,000 $ Allen 107,400 25,000 10,000 8 40,000 $ 30% 25% 12% Required: A Compute the after-tax net present value, internal rate of return, payback periods and profitability index for both models using the total-cost approach. Price Allen YEAR YEAR Annual Net Cash Flow Annual Net Cash Flow 1-1-22 12-31-22 12-31-23 12-31-24 12-31-25 12-31-26 12-31-27 12-31-28 12-31-29 12-31-29 1-1-22 12-31-22 12-31-23 12-31-24 12-31-25 12-31-26 12-31-27 12-31-28 12-31-29 12-31-29 CCA SCHEDULE -50% BASIS CCA SCHEDULE BASIS YEAR ADD'N CCA YEAR ADD'N -50% CCA OPEN UCC CCA RATE END UCC OPEN UCC CCA RATE END UCC 2022 2023 2024 2025 2026 2027 2028 2029 2022 2023 2024 2025 2026 2027 2028 2029 CALCULATE CASH FLOW AFTER TAX (CFAT) CALCULATE CASH FLOW AFTER TAX (CFAT) CFAT Payback CFAT Payback YEAR 1-1-22 12-31-22 12-31-23 12-31-24 12-31-25 12-31-26 12-31-27 12-31-28 12-31-29 12-31-29 YEAR 1-1-22 12-31-22 12-31-23 12-31-24 12-31-25 12-31-26 12-31-27 12-31-28 12-31-29 12-31-29 Net Present Value Net Present Value Internal Rate of Return Internal Rate of Return Payback year Payback year Profitability Index Profitability Index Which investment would you recommend? Explain why have you made this recommendation CAPITAL BUDGETING WITH INCOME TAXES Montreal Paper Company must purchase a paper sorter to replace its existing one on January 1, 2022. This is an essential investment because manual sorting is too demanding and causes physical problems for employees. Two models that would adequately meet the company's needs are the price and Allen models. Information related to each model includes: $ $ $ Cost of machines Working Capital needed Salvage value Life - years Annual savings of operating costs CCA Income Tax rate After-tax Cost of capital Price 53,700 $ 20,000 $ $ 8 24,000 $ Allen 107,400 25,000 10,000 8 40,000 $ 30% 25% 12% Required: A Compute the after-tax net present value, internal rate of return, payback periods and profitability index for both models using the total-cost approach. Price Allen YEAR YEAR Annual Net Cash Flow Annual Net Cash Flow 1-1-22 12-31-22 12-31-23 12-31-24 12-31-25 12-31-26 12-31-27 12-31-28 12-31-29 12-31-29 1-1-22 12-31-22 12-31-23 12-31-24 12-31-25 12-31-26 12-31-27 12-31-28 12-31-29 12-31-29 CCA SCHEDULE -50% BASIS CCA SCHEDULE BASIS YEAR ADD'N CCA YEAR ADD'N -50% CCA OPEN UCC CCA RATE END UCC OPEN UCC CCA RATE END UCC 2022 2023 2024 2025 2026 2027 2028 2029 2022 2023 2024 2025 2026 2027 2028 2029 CALCULATE CASH FLOW AFTER TAX (CFAT) CALCULATE CASH FLOW AFTER TAX (CFAT) CFAT Payback CFAT Payback YEAR 1-1-22 12-31-22 12-31-23 12-31-24 12-31-25 12-31-26 12-31-27 12-31-28 12-31-29 12-31-29 YEAR 1-1-22 12-31-22 12-31-23 12-31-24 12-31-25 12-31-26 12-31-27 12-31-28 12-31-29 12-31-29 Net Present Value Net Present Value Internal Rate of Return Internal Rate of Return Payback year Payback year Profitability Index Profitability Index Which investment would you recommend? Explain why have you made this recommendation
