Chapter $10$

Question $27-2$

Inout area:

Machine A:

Cost

Variable costs

Fixed costs

Life

Machine B:

Cost

Variable costs

Fixed costs

Life

Both:

Sales

Tax rate

Discount rate

$*$Depreciation staight$-$line

Output area:

Sales $($Gross Revenues$)$

Variable costs

Fixed costs

Depreciation

EBT

Tax Expense

Net income

Depreciation

OCF

NPV

Effective Annual Cost $($EAC$)$

$2,900,000$

$210,000$

$245,000$

Gross Revenues $-$Variable Costs $-$ Fixed Costs $-$ Depreciation

EBT $*$ Tax Rate

$($Gross Revenues $-$Variable Costs $-$Fixed Costs$)+$ Depreciation $-$ Taxes $-$ change in WC

Excel PresentValue Function $-$ Inifial Cost PMT mus tbe a negafive number $($OCF$)$

Use ExcelPMT function, PV is the negafive NPV

Decision?

Place $\text{'}x,$ delete wording in other option$\backslash$table$[[$Chapter $10,,,,,,,,,,,,,],[$Question $86-2,,,,,,,,,,,,,],[$Input area:,,,,,,,,,,,,,$],[,,,,$Year $1,,$Year $2,,$Year $3,,$Year $4,$Year $5,,],[$Quantity$,,,,71,000,,84,000,,103,000,,95,000,64,000,,],[$Initial NWC$,$$$,2,300,000,,,,,,,,,,,],[$Additional NWC$/$year$,,15\%,,,,,,,,,,,],[$Fixed costs,$$,2,900,000,,,,,,,,,,,],[$Variable cost per unit,$$,285,,,,,,,,,,,],[$Unit price,$$,410,,,,,,,,,,,],[$Equipment cost$,$$$,14,800,000,,,,,,,,,,,],[$Salvage value $(\%$ of cost$),,20\%,,,,,,,,,,,],[$Tax rate,,$21\%,,,,,,,,,,,],[$Required return,,$18\%,,,,,,,,,,,],[$MACRS depreciation,,,,$14\mathrm{.}29\%,,24\mathrm{.}49\%,,17\mathrm{.}49\%,,12\mathrm{.}49\%,8\mathrm{.}93\%,,],[$Output area:,,,,,,,,,,,,,$],[$Year$,,0_{?},,1,,2,,3_{?},,4,5_{?},,],[$Ending book value,,,,,,,,,,,,$1,$Equipment Cost $-($ Equipment Cost $*$ Depreciation Rate This Year $)],[$Sales$,,,$$$,29,110,000,$$$,34,440,000,$$$,42,230,000,$$$,38,950,000,26,240,000,,$Unit Price $*$ Quantity This Year$],[$Variable costs,,,,$20,235,000,,23,940,000,,29,355,000,,27,075,000,18,240,000,,$Variable Cost per Unit $*$ Quantity This Year$],[$Fixed costs,,,,$2,900,000,,2,900,000,,2,900,000,,2,900,000,2,900,000,,$Fixed Costs$],[$Depreciation$,,,,,,,,,,,,,$Equipment Cost $*$ Depreciation Rate This Year$],[$EBIT$,,,$$$,5,975,000,$$$,7,600,000,$$$,9,975,000,$$$,8,975,000,5,100,000,,$Sales $-$ Variable Costs $-$ Fixed Costs $-$ Depreciation$],[$Taxes$,,,,1,254,750,,1,596,000,,2,094,750,,1,884,750,1,071,000,,$EBIT $*$ Tax Rate$],[$Net income,,,$$,4,720,250,$$$,6,004,000,$$$,7,880,250,$$$,7,090,250,4,029,000,,$EBIT $-$ Taxes$],[$Depreciation$,,,,-,,-,,-,,-,-,,$Depreciation$],[$Operating cash flow,,,,,,,,,,,,$5,$Net Income $+$ Depreciation$],[$Netcash flows,,,,,,,,,,,,,$],[$Operating cash flow,$$,-,$$$,-,$$$,-,$$$,-,$$$,-,-,,$Operating Cash Flow$],[$Change in NWC$,,(2,300,000),,,,,,,,,,,$Additional NWC per Year $*($ OCF This Year $-$ OCF Next Year $)],[$Capital spending,,$(14,800,000),,-,,-,,-,,-,3,031,795,,],[$Total cash flow,$$,(17,100,000),,,,,,,,,,5,$OCF $+$ Change in NWC $+$ Capital Spending$],[$Net present value,$|,,,,,,,,,,,3,$Excel Funcion NPV $($ RR $,$ Sum of all Future Cash Flow