Add back Depreciation Total Operating Cash Flow ESTIMATING Initial Outlay (Cash Flow, CFO, T 0) Year Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) Terminal: 1) Change in net WC 2) Salvage value (after tax) Total 4) Net Working Capital Increase in CA-Increase in CL $ (20,000) Total Initial Outlay $(260.000) Project Net Cash Flows CFO 9 NPV = $ (200,000) $ (35,000) $ (5,000) $ (240,000) $ 240,000 $113.000 $ CF1 1 CF2 2 Salvage Value Before Tax (1-T) $ (260,000) $ 113,600 $ IRR = $ CF3 Payback= $ $ CF4 20,000 XXXXX XXXXX
Add back Depreciation Total Operating Cash Flow ESTIMATING Initial Outlay (Cash Flow, CFO, T 0) Year Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) Terminal: 1) Change in net WC 2) Salvage value (after tax) Total 4) Net Working Capital Increase in CA-Increase in CL $ (20,000) Total Initial Outlay $(260.000) Project Net Cash Flows CFO 9 NPV = $ (200,000) $ (35,000) $ (5,000) $ (240,000) $ 240,000 $113.000 $ CF1 1 CF2 2 Salvage Value Before Tax (1-T) $ (260,000) $ 113,600 $ IRR = $ CF3 Payback= $ $ CF4 20,000 XXXXX XXXXX
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Add back Depreciation
Total Operating Cash Flow
ESTIMATING Initial Outlay (Cash Flow, CFO, T= 0)
Year
Investments:
1) Equipment cost
2) Shipping and Install cost
3) Start up expenses
Total Basis Cost (1+2+3)
Terminal:
1) Change in net WC
2) Salvage value (after tax)
Total
4) Net Working Capital
Increase in CA-Increase in CL $ (20,000)
Total Initial Outlay
$(260.000)
Project Net Cash Flows
CFO
0
NPV =
$ (200,000)
$ (35,000)
(5,000)
$
$ (240,000)
$ 240,000
5113.000 - 5 ..
CF1
1
IRR =
Salvage Value Before Tax (1-T))
$(260,000) $ 113,600 $
CF2
2
.
$
CF3
Payback=
$
S
CF4
20,000
XXXXX
XXXXX
Transcribed Image Text:Capital Budgeting Decisions (Scenario 2)
1) Life Period of the Equipment = 4 years
2) New equipment cost
$
3) Equipment ship & install cost
$
4) Related start up cost
5) Inventory increase
6) Accounts Payable increase
7) Equip. salvage value before tax
Year
Operations: I/S
Revenue
Operating Cost
Depreciation.
EBIT
Taxes
Net Income
Add back Depreciation
$
$
8) Sales for first year (1)
(200,000) 9) Sales increase per year
(35,000) 10) Operating cost (60% of Sales)
(5,000) (as a percent of sales in Year 1)
25,000 11) Depreciation (Full depreciation)
5,000 12) Marginal Corporate Tax Rate (T)
15,000 13) Cost of Capital (Discount Rate)
$
200,000
$ (120,000)
$ (240,000)
$ (160,000)
$ (33,600)
$ (126,400)
$
240,000
4
$
200,000
5%
$
3
(120,000)
-60%
(240,000)
21%
10%
$
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 3 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education