Fill out the cells and answer the questions. A firm plan to purchase a machine cost Tax Rate 1st Year Sale Annual Earning Growth Useable Life Salvage Value Depreciation Method $35,000 21% $8,000 10% 5 Years 0 Straight line 3 20.00% 9,680 4 20.00% 10,648 5 20.00% 11,713 a. Fill out the cells for calculating Cash Flow (Straight line depreciation) 10 pts Year 0 1 2 Depreciation Rate 20.00% 20.00% Earnings before depreciation and taxes (EBITDA) 8,000 8,800 Depreciation Earnings before taxes Tax Net operating profit after tax Capital investment (no salvage value) -50000 Add back depreciation Free cash flow -50,000 Discount rate 10.00% b. NPV 5pts C. IRR 5pts d. Should the firm purchase this machine? Why? 5pts Fill out the cells and answer the questions. A firm plan to purchase a machine cost Tax Rate 1st Year Sale Annual Earning Growth Useable Life Salvage Value Depreciation Method ###### 217 $8,000 10% 5 Years 0 Straight line a. Fill out the cells for calculating Cash Flow (Straight line depreciation) 10 pts Year 0 1 2 3 4 5 Depreciation Rate 20.00% 20.00% 20.00% 20.00% 20.00% Earnings before depreciation and taxes (EBITDA) 8,000 8,800 9,680 10,648 11,713 Depreciation Earnings before taxes Tax Net operating profit after tax Capital investment (no salvage value) -50000 Add back depreciation Free cash flow -50,000 Discount rate 10.00% b. NPV 5pts C. IRR 5pts d. Should the firm purchase this machine? Why? 5pts E. Bonus Question: Given all the uncertainties of the economy and the business, the company try to conduct a sensitivity analysis base on different annal growth rate of earnings. What would be the NPV for the listed growth rate below? 10 pts Possib le Annual NPV Earnin g 27 4% 6% 872 102 Fill out the cells and answer the questions. A firm plan to purchase a machine cost Tax Rate 1st Year Sale Annual Earning Growth Useable Life Salvage Value Depreciation Method $35,000 21% $8,000 10% 5 Years 0 Straight line 3 20.00% 9,680 4 20.00% 10,648 5 20.00% 11,713 a. Fill out the cells for calculating Cash Flow (Straight line depreciation) 10 pts Year 0 1 2 Depreciation Rate 20.00% 20.00% Earnings before depreciation and taxes (EBITDA) 8,000 8,800 Depreciation Earnings before taxes Tax Net operating profit after tax Capital investment (no salvage value) -50000 Add back depreciation Free cash flow -50,000 Discount rate 10.00% b. NPV 5pts C. IRR 5pts d. Should the firm purchase this machine? Why? 5pts Fill out the cells and answer the questions. A firm plan to purchase a machine cost Tax Rate 1st Year Sale Annual Earning Growth Useable Life Salvage Value Depreciation Method ###### 217 $8,000 10% 5 Years 0 Straight line a. Fill out the cells for calculating Cash Flow (Straight line depreciation) 10 pts Year 0 1 2 3 4 5 Depreciation Rate 20.00% 20.00% 20.00% 20.00% 20.00% Earnings before depreciation and taxes (EBITDA) 8,000 8,800 9,680 10,648 11,713 Depreciation Earnings before taxes Tax Net operating profit after tax Capital investment (no salvage value) -50000 Add back depreciation Free cash flow -50,000 Discount rate 10.00% b. NPV 5pts C. IRR 5pts d. Should the firm purchase this machine? Why? 5pts E. Bonus Question: Given all the uncertainties of the economy and the business, the company try to conduct a sensitivity analysis base on different annal growth rate of earnings. What would be the NPV for the listed growth rate below? 10 pts Possib le Annual NPV Earnin g 27 4% 6% 872 102
