A Company is considering a proposal of installing a drying equipment. The equipment would involve a Cash outlay of 6,00,000 and net Working Capital of 80,000. The expected life of the project is 5 years without any salvage value. Assume that the company is allowed to charge depreciation on straight-line basis for Income-tax purpose. The estimated before-tax cash inflows are given below: Year Before-tax Cash inflows ('000) 1 2 3 4 5 240 275 210 180 160 The applicable Income-tax rate to the Company is 35%. If the Company's opportunity Cost of Capital is 12%, calculate the equipment's discounted payback period, payback period, net present value and internal rate of return. The PV factors at 12 %, 14% and 15% are: Year 1 2 3 4 PV factor at 12% 0.8929 0.7972 0.7118 0.6355 0.5674 PV factor at 14% 0.8772 0.7695 0.6750 0.5921 0.5194 PV factor at 15% 0.8696 0.7561 0.6575 0.5718 0.4972
A Company is considering a proposal of installing a drying equipment. The equipment would involve a Cash outlay of 6,00,000 and net Working Capital of 80,000. The expected life of the project is 5 years without any salvage value. Assume that the company is allowed to charge depreciation on straight-line basis for Income-tax purpose. The estimated before-tax cash inflows are given below: Year Before-tax Cash inflows ('000) 1 2 3 4 5 240 275 210 180 160 The applicable Income-tax rate to the Company is 35%. If the Company's opportunity Cost of Capital is 12%, calculate the equipment's discounted payback period, payback period, net present value and internal rate of return. The PV factors at 12 %, 14% and 15% are: Year 1 2 3 4 PV factor at 12% 0.8929 0.7972 0.7118 0.6355 0.5674 PV factor at 14% 0.8772 0.7695 0.6750 0.5921 0.5194 PV factor at 15% 0.8696 0.7561 0.6575 0.5718 0.4972
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 6CE
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![A Company is considering a proposal of installing a drying equipment. The equipment would involve a Cash outlay of 6,00,000 and net Working Capital of 80,000. The expected life
of the project is 5 years without any salvage value. Assume that the company is allowed to charge depreciation on straight-line basis for Income-tax purpose. The estimated before-tax
cash inflows are given below:
Year
Before-tax Cash inflows ('000)
1 2 3 4 5
240 275 210 180 160
The applicable Income-tax rate to the Company is 35%. If the Company's opportunity Cost of Capital is 12%, calculate the equipment's discounted payback period, payback period, net
present value and internal rate of return.
The PV factors at 12%, 14% and 15% are:
Year
1 2 3 4 5
PV factor at 12% 0.8929 0.7972 0.7118 0.6355 0.5674
PV factor at 14% 0.8772 0.7695 0.6750 0.5921 0.5194
PV factor at 15% 0.8696 0.7561 0.6575 0.5718 0.4972
10-22](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F23ae590d-7e74-4341-9f1b-dd1f4fb43ab1%2Fd76d71c9-7946-49e5-a176-3ad2e3670cd5%2Faborun_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A Company is considering a proposal of installing a drying equipment. The equipment would involve a Cash outlay of 6,00,000 and net Working Capital of 80,000. The expected life
of the project is 5 years without any salvage value. Assume that the company is allowed to charge depreciation on straight-line basis for Income-tax purpose. The estimated before-tax
cash inflows are given below:
Year
Before-tax Cash inflows ('000)
1 2 3 4 5
240 275 210 180 160
The applicable Income-tax rate to the Company is 35%. If the Company's opportunity Cost of Capital is 12%, calculate the equipment's discounted payback period, payback period, net
present value and internal rate of return.
The PV factors at 12%, 14% and 15% are:
Year
1 2 3 4 5
PV factor at 12% 0.8929 0.7972 0.7118 0.6355 0.5674
PV factor at 14% 0.8772 0.7695 0.6750 0.5921 0.5194
PV factor at 15% 0.8696 0.7561 0.6575 0.5718 0.4972
10-22
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