PLEASE SHOW CALCULATIONS

K L M N AA B D E F G H 1 CAPITAL BUDGETING WITH INCOME TAXES 2 Montreal Paper Company must purchase a paper sorter to replace its existing one on January 1, 2022. 3 This is an essential investment because manual sorting is too demanding and causes physical problems for employees. 4. Two models that would adequately meet the company's needs are the price and Allen models. 5 Information related to each model includes: 6 7 8 9 $ $ $ Price 47,500 $ 20,000 $ $ 8 24,000 $ Cost of machines Working Capital needed Salvage value Life - years Annual savings of operating costs CCA Income Tax rate After-tax Cost of capital Allen 95,000 25,000 10,000 8 40,000 10 11 12 $ 13 14 30% 25% 12% 15 16 17 Required: Allen Annual Net Cash Flow 18 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. 19 20 Price 21 YEAR Annual Net Cash YEAR 22 Flow 23 1/1/22 1/1/22 24 12/31/22 12/31/22 25 12/31/23 12/31/23 26 12/31/24 12/31/24 27 12/31/25 12/31/25 28 12/31/26 12/31/26 29 12/31/27 12/31/27 30 12/31/28 12/31/28 31 12/31/29 12/31/29 32 12/31/29 12/31/29 33 B D E F G H 1 J K L M N 0 P Q R S 33 34 CCA SCHEDULE -50% BASIS CCA SCHEDULE -50% BASIS YEAR ADD'N CCA YEAR ADD'N CCA OPEN UCC CCA RATE END UCC OPEN UCC CCA RATE END UCC 35 36 37 38 39 40 41 42 43 44 2022 2023 2024 2025 2026 2027 2028 2029 2022 2023 2024 2025 2026 2027 2028 2029 45 46 47 48 49 CALCULATE CASH FLOW AFTER TAX (CFAT) CALCULATE CASH FLOW AFTER TAX (CFAT) CFAT Payback CFAT Payback 50 51 52 53 54 55 56 57 58 59 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 60 61 Net Present Value Net Present Value 62 63 64 Internal Rate of Return Internal Rate of Return 65 66 67 Payback year Payback year 68 69 70 Profitability Index Profitability Index A B D E F G H J K L M N 0 P Q R S CFAT Payback CFAT Payback 48 49 50 51 52 53 54 55 56 57 58 59 60 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 61 Net Present Value Net Present Value 62 Internal Rate of Return Payback year Profitability Index 63 64 Internal Rate of Return 65 66 67 Payback year 68 69 70 Profitability Index 71 72 B Which investment would you recommend? 73 74 C Explain why have you made this recommendation 75 76 77 78 79 80 81 K L M N AA B D E F G H 1 CAPITAL BUDGETING WITH INCOME TAXES 2 Montreal Paper Company must purchase a paper sorter to replace its existing one on January 1, 2022. 3 This is an essential investment because manual sorting is too demanding and causes physical problems for employees. 4. Two models that would adequately meet the company's needs are the price and Allen models. 5 Information related to each model includes: 6 7 8 9 $ $ $ Price 47,500 $ 20,000 $ $ 8 24,000 $ Cost of machines Working Capital needed Salvage value Life - years Annual savings of operating costs CCA Income Tax rate After-tax Cost of capital Allen 95,000 25,000 10,000 8 40,000 10 11 12 $ 13 14 30% 25% 12% 15 16 17 Required: Allen Annual Net Cash Flow 18 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. 19 20 Price 21 YEAR Annual Net Cash YEAR 22 Flow 23 1/1/22 1/1/22 24 12/31/22 12/31/22 25 12/31/23 12/31/23 26 12/31/24 12/31/24 27 12/31/25 12/31/25 28 12/31/26 12/31/26 29 12/31/27 12/31/27 30 12/31/28 12/31/28 31 12/31/29 12/31/29 32 12/31/29 12/31/29 33 B D E F G H 1 J K L M N 0 P Q R S 33 34 CCA SCHEDULE -50% BASIS CCA SCHEDULE -50% BASIS YEAR ADD'N CCA YEAR ADD'N CCA OPEN UCC CCA RATE END UCC OPEN UCC CCA RATE END UCC 35 36 37 38 39 40 41 42 43 44 2022 2023 2024 2025 2026 2027 2028 2029 2022 2023 2024 2025 2026 2027 2028 2029 45 46 47 48 49 CALCULATE CASH FLOW AFTER TAX (CFAT) CALCULATE CASH FLOW AFTER TAX (CFAT) CFAT Payback CFAT Payback 50 51 52 53 54 55 56 57 58 59 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 60 61 Net Present Value Net Present Value 62 63 64 Internal Rate of Return Internal Rate of Return 65 66 67 Payback year Payback year 68 69 70 Profitability Index Profitability Index A B D E F G H J K L M N 0 P Q R S CFAT Payback CFAT Payback 48 49 50 51 52 53 54 55 56 57 58 59 60 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 61 Net Present Value Net Present Value 62 Internal Rate of Return Payback year Profitability Index 63 64 Internal Rate of Return 65 66 67 Payback year 68 69 70 Profitability Index 71 72 B Which investment would you recommend? 73 74 C Explain why have you made this recommendation 75 76 77 78 79 80 81