Cost of new equipment: $200,000 Installation: $20,000 Change in Net Operating Working Capital: $50,000 New sales per year: $115,000 New operating costs per year: $50,000 Economic life: 4 years Depreciable life: MACRS 3-year class (33%, 45%, 15%, 7%) Salvage value: $20,000 Tax Rate: 25% WACC: 9% What is the total initial investment outlay (FCF0)? What is the operating cash flow for year 2, or FCF2? (SHOW ALL WORK/STEPS) What are the planned non-operating cash flows in year 4 (i.e. terminal cash flows)? (SHOW ALL WORK/STEPS) What is the book value of the equipment after three years?

Cost of new equipment: $200,000 Installation: $20,000 Change in Net Operating Working Capital: $50,000 New sales per year: $115,000 New operating costs per year: $50,000 Economic life: 4 years Depreciable life: MACRS 3-year class (33%, 45%, 15%, 7%) Salvage value: $20,000 Tax Rate: 25% WACC: 9% What is the total initial investment outlay (FCF0)? What is the operating cash flow for year 2, or FCF2? (SHOW ALL WORK/STEPS) What are the planned non-operating cash flows in year 4 (i.e. terminal cash flows)? (SHOW ALL WORK/STEPS) What is the book value of the equipment after three years?

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter18: Accounting For Long-term Assets

Section: Chapter Questions

Problem 10SPA: IMPACT OF IMPROVEMENTS AND REPLACEMENTS ON THE CALCULATION OF DEPRECIATION On January 1, 20-1, two...

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Question

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Cost of new equipment: $200,000
Installation: $20,000
Change in Net Operating Working Capital: $50,000
New sales per year: $115,000
New operating costs per year: $50,000
Economic life: 4 years
Depreciable life: MACRS 3-year class (33%, 45%, 15%, 7%)
Salvage value: $20,000
Tax Rate: 25%
WACC: 9%

What is the total initial investment outlay (FCF₀)?

What is the operating cash flow for year 2, or FCF₂? (SHOW ALL WORK/STEPS)

What are the planned non-operating cash flows in year 4 (i.e. terminal cash flows)? (SHOW ALL WORK/STEPS)

What is the book value of the equipment after three years?

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

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1. Calculation of Total Initial Investment Outlay (FCF0):

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2. Calculation of Operating Cash Flow for year 2, or FCF2:

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3. Calculation of planned non-operating cash flows in year 4 (Terminal Cash Flows):

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4. Calculation of book value of the equipment after three years:

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Subject: accounting
Problems 43 and 44 are based on the following statement: Used New machine machine Initial Cost 15,000 40,000 ($) Annual 8,000 2,000 operating cost ($/year) Salvage 5,000 10,000 value ($) Life (years) 3 6 Use an interest rate of 10% per year 43. The present worth of the new machine is closest to: (A) $43,630 (B) $43,066 (C) $45,210 (D) $49,660 44. To compare the machines on the basis of a present worth analysis, the present worth values to use are: (A) PWused $31,139, PW new = $43,066 (B) PWused $31,139, PW new = $37,461 (C) PWused $54,533, PW new = $43,066 (D) PWused $54,533, PW new = $37,461
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