Compute NPV to compare each option after analyzing inflows and outflows.
Cash IntIOWS Cash Purchase Bank Loan Cash Outflow for Equipment Purchase $ 10,000,000 cash up front Outflow Int. Factor Present Value Present value of cash outflow 10,000,000 1 10,000,000 Present value of cash inflows 10,523.246 Present value of cash outflows 10,000,000 Net present value 523,246 Payback 5.4687513 Cash Inflows Cash Purchase Bank Loan Cash Inflows from Equipment Use Increase in operating income Interest Factor Present value of Cash inflows Annually for 12 years 2,000,000 Taxes on savings 600,000 Net annual cash inflows 1,400,000 6.1944 8.672,160 Depreciation tax savings 428,753 see tab 1.851,086 Toal present value of cash inflows and tax savings 10,523,246 Cash Intlows Cash Purchase Bank Loan Bonds Lease ash Outflow for Equipment Purchase Bank loan Tax savings Interest on interest Principal Present value of Cash Outflow Net Cash Interest Outflow Factor Cash outflow year Cash outflow year 2 Cash outflow year 3 Cash outflow year 4 Cash outflow years Cash outflow year 6 Cash outflow year 7 Cash outflow year 8 3,000,000 1,350,000 1,300,000 1.250.000 1,200,000 1,150,000 1,100,000 1,050,000 1,000,000 350,000 105.000 1,000,000 300,000 90,000 1.000.000 250.000 75.000 1,000,000 200,000 60,000 1,000,000 150,000 45,000 1,000,000 100.000 30,000 1,000,000 50,000 15.000 3.000.000 1.245,000 1.210,000 1.175.000 1.140,000 1,105,000 1,070,000 1.035,000 13.000.000 0.8929 1,111,661 0.7972 964,612 0.7118 836,365 0.6355 724,470 0.5674 626,977 0.5066 542,062 0.4523 468,131 Total present value of cash outflows 8,274,277 Present value of cash inflows 10,523,246 Present value of cash outflows 8,274,277 Net present value 2,248.969 Payback 0.7382814 Casn IntioWS Casn Purchase Bank Loan Bonas Lease Cash Outflow for Equipment Purchase Lease payments (40 payments) cach 304556 wadow of payments Net Outflow PV of Outflow Payment Principal Interest on intense Factor 204556 206,602 1 2 3 4 5 6 7 0.9901 0.9803 0.9706 100,000 97,954 95. 93.802 91.694 89 566 87416 XS 244 83,051 274.556 275.170 275,789 276.415 2770 277.486 271838 269749 26741 265.635 261611 10.000 29.36 26,767 25.141 27.50 26.570 26.225 25573 24915 34251 2150 22.02 22217 21,524 20.327 20.122 276.983 9 0.9515 0940 09327 9215 0.914 09053 D. 0.8874 OX7 10 11 12 13 14 259.600 257.641 255.675 2527 251.239 249.940 24 78.599 76,339 74,057 71.752 210.754 212.162 214.990 217.140 219.312 221.SOS 223.720 225957 228217 210.499 23204 235.132 237.483 219.5 242.257 244.679 247.126 249.597 252.093 254.614 257.160 259.732 262129 264,952 IS 16 0.1613 DRS 0.8466 19.400 64 62299 59,677 57.410 54,959 20.305 20.976 281.654 22.019 21030 203.729 284414 285.147 256 251 387.127 206 21 29.573 0337 291.109 24.376 2402665 340778 238984 207219 ISO 17.1 17.229 16.43 15,739 14.1 14219 13.447 233739 232016 2017 49,942 47.96 44,624 42.227 227.007 225 237 11. 18 19 20 21 22 23 24 25 26 27 28 29 30 31 12 33 34 15 16 37 tx 12.675 293.470 2271 0277 195 08114 D4 0.7954 0.7876 0. 0.772 0.7500 0.7568 0.7993 0.7419 0.7346 0.7271 0.7201 0.7129 0.7058 D. 270,278 102 9.473 7826 295.902 2730 7565 275.711 278.468 281.252 284.065 26.06 289.775 292.672 295599 555 301.541 14.27 31.575 28.845 26. OK 23,304 20.491 17.6.50 14.71 11.4 8.957 6.001 2015 220.498 218922 217.30 215.511 214276 212.736 211.218 209.725 6149 5.295 4414 3.565 2 1.800 905 207.052 300.991 301 302.756 303.651 0.685 0.6791 0.6724 40 204.17 Total present value of cash flow Present value of cash inflows 10.323.246 Present val of cash outflows 9.410.02 Net present value 1.092.444 Payback 0.6662164 Depreciation Schedule Year Tax Savings 1 714,286 2 1.428,571 3 1,428,571 4 1.428.571 5 1,428,571 6 1,428,571 7 1.428.571 8 714,286 214.286 428,571 428,571 428,371 428,571 428,571 428,371 214,286 0.8929 0.7972 0.7118 0.6353 0.5674 0.5066 0.4523 0.4039 191336 341657 305057 272337 243171 217114 193843 86550 1851086 Cash InTIOWS Casn Purchase Bank Loan Bone Cash Outflow for Equipment Purchase Financed by Bonds Cash Outflow Interest Factor Present value of Cash Ouflow Up front costs (floatation) 2,000,000 12,000,000 Tax savings on floatation costs (60,000) 5.6502 (339,012) interest payments 20 periods 300,000 7.4694 2.240.820 Lump sum payment end of year 10 10,000,000 0.322 3,220,000 Total present vlaue of cash outflows 7,121,808 Present value of cash inflows 10,523,246 Present value of cash outflows 7,121,808 Net present value 3,401,438 Cash IntIOWS Cash Purchase Bank Loan Cash Outflow for Equipment Purchase $ 10,000,000 cash up front Outflow Int. Factor Present Value Present value of cash outflow 10,000,000 1 10,000,000 Present value of cash inflows 10,523.246 Present value of cash outflows 10,000,000 Net present value 523,246 Payback 5.4687513 Cash Inflows Cash Purchase Bank Loan Cash Inflows from Equipment Use Increase in operating income Interest Factor Present value of Cash inflows Annually for 12 years 2,000,000 Taxes on savings 600,000 Net annual cash inflows 1,400,000 6.1944 8.672,160 Depreciation tax savings 428,753 see tab 1.851,086 Toal present value of cash inflows and tax savings 10,523,246 Cash Intlows Cash Purchase Bank Loan Bonds Lease ash Outflow for Equipment Purchase Bank loan Tax savings Interest on interest Principal Present value of Cash Outflow Net Cash Interest Outflow Factor Cash outflow year Cash outflow year 2 Cash outflow year 3 Cash outflow year 4 Cash outflow years Cash outflow year 6 Cash outflow year 7 Cash outflow year 8 3,000,000 1,350,000 1,300,000 1.250.000 1,200,000 1,150,000 1,100,000 1,050,000 1,000,000 350,000 105.000 1,000,000 300,000 90,000 1.000.000 250.000 75.000 1,000,000 200,000 60,000 1,000,000 150,000 45,000 1,000,000 100.000 30,000 1,000,000 50,000 15.000 3.000.000 1.245,000 1.210,000 1.175.000 1.140,000 1,105,000 1,070,000 1.035,000 13.000.000 0.8929 1,111,661 0.7972 964,612 0.7118 836,365 0.6355 724,470 0.5674 626,977 0.5066 542,062 0.4523 468,131 Total present value of cash outflows 8,274,277 Present value of cash inflows 10,523,246 Present value of cash outflows 8,274,277 Net present value 2,248.969 Payback 0.7382814 Casn IntioWS Casn Purchase Bank Loan Bonas Lease Cash Outflow for Equipment Purchase Lease payments (40 payments) cach 304556 wadow of payments Net Outflow PV of Outflow Payment Principal Interest on intense Factor 204556 206,602 1 2 3 4 5 6 7 0.9901 0.9803 0.9706 100,000 97,954 95. 93.802 91.694 89 566 87416 XS 244 83,051 274.556 275.170 275,789 276.415 2770 277.486 271838 269749 26741 265.635 261611 10.000 29.36 26,767 25.141 27.50 26.570 26.225 25573 24915 34251 2150 22.02 22217 21,524 20.327 20.122 276.983 9 0.9515 0940 09327 9215 0.914 09053 D. 0.8874 OX7 10 11 12 13 14 259.600 257.641 255.675 2527 251.239 249.940 24 78.599 76,339 74,057 71.752 210.754 212.162 214.990 217.140 219.312 221.SOS 223.720 225957 228217 210.499 23204 235.132 237.483 219.5 242.257 244.679 247.126 249.597 252.093 254.614 257.160 259.732 262129 264,952 IS 16 0.1613 DRS 0.8466 19.400 64 62299 59,677 57.410 54,959 20.305 20.976 281.654 22.019 21030 203.729 284414 285.147 256 251 387.127 206 21 29.573 0337 291.109 24.376 2402665 340778 238984 207219 ISO 17.1 17.229 16.43 15,739 14.1 14219 13.447 233739 232016 2017 49,942 47.96 44,624 42.227 227.007 225 237 11. 18 19 20 21 22 23 24 25 26 27 28 29 30 31 12 33 34 15 16 37 tx 12.675 293.470 2271 0277 195 08114 D4 0.7954 0.7876 0. 0.772 0.7500 0.7568 0.7993 0.7419 0.7346 0.7271 0.7201 0.7129 0.7058 D. 270,278 102 9.473 7826 295.902 2730 7565 275.711 278.468 281.252 284.065 26.06 289.775 292.672 295599 555 301.541 14.27 31.575 28.845 26. OK 23,304 20.491 17.6.50 14.71 11.4 8.957 6.001 2015 220.498 218922 217.30 215.511 214276 212.736 211.218 209.725 6149 5.295 4414 3.565 2 1.800 905 207.052 300.991 301 302.756 303.651 0.685 0.6791 0.6724 40 204.17 Total present value of cash flow Present value of cash inflows 10.323.246 Present val of cash outflows 9.410.02 Net present value 1.092.444 Payback 0.6662164 Depreciation Schedule Year Tax Savings 1 714,286 2 1.428,571 3 1,428,571 4 1.428.571 5 1,428,571 6 1,428,571 7 1.428.571 8 714,286 214.286 428,571 428,571 428,371 428,571 428,571 428,371 214,286 0.8929 0.7972 0.7118 0.6353 0.5674 0.5066 0.4523 0.4039 191336 341657 305057 272337 243171 217114 193843 86550 1851086 Cash InTIOWS Casn Purchase Bank Loan Bone Cash Outflow for Equipment Purchase Financed by Bonds Cash Outflow Interest Factor Present value of Cash Ouflow Up front costs (floatation) 2,000,000 12,000,000 Tax savings on floatation costs (60,000) 5.6502 (339,012) interest payments 20 periods 300,000 7.4694 2.240.820 Lump sum payment end of year 10 10,000,000 0.322 3,220,000 Total present vlaue of cash outflows 7,121,808 Present value of cash inflows 10,523,246 Present value of cash outflows 7,121,808 Net present value 3,401,438
