Input area: Initial investment Pretax salvage value Cost savings per year Cost savings per year $ Working capital reduction Annual depreciation charge Aftertax salvage value 69 69 69 SA SA SA SA $ 535,000 $ 30,000 $ 150,000 100,000 $ 60,000 $ 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 234L 139,680 139,680 5 102,480 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 2345 cost savings Cash flow (475,000) 101,680 101,680 101,680 101,680 64,480
Input area: Initial investment Pretax salvage value Cost savings per year Cost savings per year $ Working capital reduction Annual depreciation charge Aftertax salvage value 69 69 69 SA SA SA SA $ 535,000 $ 30,000 $ 150,000 100,000 $ 60,000 $ 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 234L 139,680 139,680 5 102,480 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 2345 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:Input area:
Initial investment
Pretax salvage value
Cost savings per year
Cost savings per year
$
Working capital reduction
Annual depreciation charge
Aftertax salvage value
69 69 69 SA SA SA SA
$
535,000
$
30,000
$
150,000
100,000
$
60,000
$
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
234L
139,680
139,680
5
102,480
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
2345
cost savings
Cash flow
(475,000)
101,680
101,680
101,680
101,680
64,480
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