Y9

One of the many steps in constructing a Cash-Flow Worksheet for a capital budgeting analysis is to calculate the Capital Expenditures ("CapEx" both at t = 0 and at the instant when the project will be terminated For reference, you can turn to the In-Class Example where we constructed an entire Cash-Flow Worksheet for a shoe-manufacturing project. From that exercise (and elsewhere in the course infrastructure), you will be reminded that "CapEx" = ANet Fixed Assets + Depreciation Expense - Gain on Sale of Asset. Suppose that the long-term asset under consideration here could be purchased (or built from scratch) for 270000 and will be depreciated using the straight-line method over a 9-year horizon, down to an ending book value of $0. Note: You must use the mandated depreciation schedule, irrespective of the length of the firm's evaluation horizon for the project You also forecast, as part of your analysis, that the project could be sold, at termination (i.e., at t = 6 (term.) for 52000. Just as a reminder (as part of your analysis will need the Gain on Sale of Asset at termination, please recall from this course (and any earlier Accounting course) that Gain on Sale of Asset (always) equals Selling Price minus Net Book Value (of the asset) at Time of Sale. Gain can be positive or negative, The Gain would hit the company's income statement, affect Taxable Income, and (in turn) affect Tax Expense. Use a 25% tax rate in determining the Tax Expense. Now, complete the following table and ultimately calculate (1) Capital Expenditures at t = 0, (2) Capital Expenditures at t = 7 (term.), and (3) the Tax Expense at t = 7 (term.) created by the Gain on Sale of Asset. [To enter any negative number, please just put a minus sign in front of the number.] 6 7 (oper.) 7 (term.) i Tax Expense ! ANet Fixed Assets -30000 ........ -30000 -30000 Depreciation Expense 30000 30000 30000 Gain on Sale of Asset ......... Capital Expenditures {Side Learning: Notice, in the above table, that if you actually take time to calculate Capital Expenditures for each of the years of operation (i.e., for t =1 through t = 6 (oper.), the answer has to be zero ... as the firm is neither buying nor selling the asset. When covering this topic in class, | likely left all of these cells empty, But, here I just want you to see why we can leave them empty: The numbers will necessarily always result in a Capital Expenitures of $0, which they should (as the project's long-term asset isn't being bought or soldj.}