Initial investment Pretax salvage value Cost savings per year 535,000 30,000 150,000 Cost savings per year 100,000 Working capital reduction $ 60,000 Annual depreciation charge $ Aftertax salvage value 6969 107,000 22,800 Tax rate Required return *Depreciation straight-line over life 24% 11% 5 Output area: $ NPV 150,000 cost savings $ 100,000 Year Cash flow Year 0 $ (475,000) 0 $ 1 139,680 1 2 139,680 3 139,680 4 139,680 5 102,480 2345 Accept/Reject Required pretax cost savings: NPV w/o OCF Required OCF OCF less dep. tax shield Cost savings 69 69 69 $ (497,076.39) $ 134,494.11 $ 108,814.11 cost savings Cash flow (475,000) 101,680 101,680 101,680 101,680 64,480
Initial investment Pretax salvage value Cost savings per year 535,000 30,000 150,000 Cost savings per year 100,000 Working capital reduction $ 60,000 Annual depreciation charge $ Aftertax salvage value 6969 107,000 22,800 Tax rate Required return *Depreciation straight-line over life 24% 11% 5 Output area: $ NPV 150,000 cost savings $ 100,000 Year Cash flow Year 0 $ (475,000) 0 $ 1 139,680 1 2 139,680 3 139,680 4 139,680 5 102,480 2345 Accept/Reject Required pretax cost savings: NPV w/o OCF Required OCF OCF less dep. tax shield Cost savings 69 69 69 $ (497,076.39) $ 134,494.11 $ 108,814.11 cost savings Cash flow (475,000) 101,680 101,680 101,680 101,680 64,480
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:Initial investment
Pretax salvage value
Cost savings per year
535,000
30,000
150,000
Cost savings per year
100,000
Working capital reduction
$
60,000
Annual depreciation charge
$
Aftertax salvage value
6969
107,000
22,800
Tax rate
Required return
*Depreciation straight-line
over life
24%
11%
5
Output area:
$
NPV
150,000
cost savings
$
100,000
Year
Cash flow
Year
0 $
(475,000)
0 $
1
139,680
1
2
139,680
3
139,680
4
139,680
5
102,480
2345
Accept/Reject
Required pretax cost savings:
NPV w/o OCF
Required OCF
OCF less dep. tax shield
Cost savings
69 69 69
$
(497,076.39)
$
134,494.11
$
108,814.11
cost savings
Cash flow
(475,000)
101,680
101,680
101,680
101,680
64,480
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