The ABC company is considering purchasing a machine that costs $280,000 and expected to yield $200,000 per year before taxes. The company has to borrow $80,000 which have to be repaid in two years at i=10%. The cost of operating and maintaining the machine is $40,000 per year. The machine will be needed for two years and can be sold at the end of the second year for $120,000. For depreciation purposes the straight-line depreciation method with no half-year convention applies. Find the missing values in the following tables in order to determine if this was a good investment at MARR of 14%. The company’s income tax is 40%. Your decision should be based on the PW criterion. INCOME STATEMENT End of Year: 0 1 2 Revenue: 200,000 200,000 Expenses Operating Costs: 40,000 40,000 Depreciation: - - - ? - - - ? Debt Interest - - - ? 4191 Taxable Income: - - - ? 75809 Tax: (40%) 28800 30324 Net Income: 43200 - - - ? CASH FLOW STATEMENT End of Year 0 1 2 Operating Activities: Net Income: 43200 - - - ? Depreciation: 80000 80000 Investment Activities: Machine: - 280,000 Salvage Value: 120,000 Gains Tax: - - - ? Financing Activities: Borrowed Money: 80,000 Principal Repayment: - - - ? - 41905 Net Cash Flow: - - - ? 85104 - - - ? Present Worth = …………………………………………… ? Decision: ………………………………………………………………………. ?
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The ABC company is considering purchasing a machine that costs $280,000 and expected to yield $200,000 per year before taxes. The company has to borrow $80,000 which have to be repaid in two years at i=10%. The cost of operating and maintaining the machine is $40,000 per year. The machine will be needed for two years and can be sold at the end of the second year for $120,000. For
INCOME STATEMENT
|
End of Year: |
0 |
1 |
2 |
|
Revenue: |
|
200,000 |
200,000 |
|
Expenses |
|
|
|
|
Operating Costs: |
|
40,000 |
40,000 |
|
Depreciation: |
|
- - - ? |
- - - ? |
|
Debt Interest |
|
- - - ? |
4191 |
|
Taxable Income: |
|
- - - ? |
75809 |
|
Tax: (40%) |
|
28800 |
30324 |
|
Net Income: |
|
43200 |
- - - ? |
CASH FLOW STATEMENT
|
End of Year |
0 |
1 |
2 |
|
Operating Activities: |
|
|
|
|
Net Income: |
|
43200 |
- - - ? |
|
Depreciation: |
|
80000 |
80000 |
|
Investment Activities: |
|
|
|
|
Machine: |
- 280,000 |
|
|
|
Salvage Value: |
|
|
120,000 |
|
Gains Tax: |
|
|
- - - ? |
|
Financing Activities: |
|
|
|
|
Borrowed Money: |
80,000 |
|
|
|
Principal Repayment: |
|
- - - ? |
- 41905 |
|
Net Cash Flow: |
- - - ? |
85104 |
- - - ? |
|
Present Worth = …………………………………………… ?
|
|||
|
Decision: ………………………………………………………………………. ?
|
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