Use excel to answer

Question 14 (5 marks) Evaluate the decision by a company to buy an additional machine in order to expand production. The machine costs $210,000, plus installation costs of $22,000. The company has estimated that sales should increase by $183,000 per annum for the next 4 years. Staff costs will increase by about $80,000 per annum and there will be additional maintenance charges of $28,000 per annum. The company plans to keep the machine for 4 years and anticipates that its resale should recover $90,000. The company has a tax rate of 30 cents in the Dollar. The machine, including the installation costs, can be depreciated fo tax purposes at 20 per cent per annum, giving a written down (or salvage value) for tax purposes of 20 per cent of the costs after 4 years. A discount rate of 14 per cent per annum is appropriate. Work out the Net Cash Flows using only one of the two templates given (if you complete both, only the first will be marked). None of the cells in the tables (either C46 to G52 or C58 to G67 should contain numbers; i.e. no "hard-coding". $210,000 $22,000 20.00% per annum 5 year life Cost of machine Installation costs Depreciation rate Annual depreciation Written down value Sales increase Increase in staff costs Increased maintenance Resale of asset Company tax rate Discount rate after 4 years $183,000 per annum $80,000 per annum $28,000 per annum $90,000 30.00% 14.00% 3 4 Capital budgeting - first method of deriving net cash flows Year 0 1 2 Cost Depreciation Tax Savings Sale of Asset Tax on sale Sales increase (after tax) Cost increases (after tax) Net Cash Flows NPV Work out the NPV from whichever Net Cash Flows you have completed Capital budgeting - second method of deriving net cash flows NPV Work out the NPV from whichever Net Cash Flows you hav 3 4 Capital budgeting - second method of deriving net cash flows Year 0 1 2 Sales increases Cost increases Depreciation expense EBIT Tax Add back Depreciation Expense Cost Sale of equipment Tax on sale Net Cash Flows