The original equipment was purchased 3 years ago for $200,000 and was depreciating using the 5 Year MACRS depreciation schedule over 6 years. It has currently been depreciated 71% of the original cost. The equipment was planned to be sold at the end of it’s 5th year of use before it was fully depreciated for a salvage value in two years at an estimated $30,000. The old equipment has a current salvage value of $98,000. What's is the new NPV?
The original equipment was purchased 3 years ago for $200,000 and was depreciating using the 5 Year MACRS depreciation schedule over 6 years. It has currently been depreciated 71% of the original cost. The equipment was planned to be sold at the end of it’s 5th year of use before it was fully depreciated for a salvage value in two years at an estimated $30,000. The old equipment has a current salvage value of $98,000. What's is the new NPV?
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
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The original equipment was purchased 3 years ago for $200,000 and was depreciating using the 5 Year MACRS depreciation schedule over 6 years. It has currently been
The old equipment has a current salvage value of $98,000.
What's is the new
Transcribed Image Text:Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Net Sales Change
$45,000
$50,000
$60,000
$60,000
$60,000
$60,000
$60,000
$60,000
Expense Change (Cost Savings)
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
EBITDA (EBIT before Depreciation Expense) change
55,000
60,000
70,000
70,000
70,000
70,000
70,000
70,000
New Equip
(250,000)
Depreciation Expense
20%
(50,000)
(New Equipment)
32%
(80,000)
19.2%
(48,000)
11.52%
(28,800)
11.52%
(28,800)
5.76%
(14,400)
Loss of Depreciation Expense (Replaced Equipment)
(Replaced Equipment)
EBIT
5,000
70,000
(20,000)
8,000
22,000
41,200
41,200
55,600
70,000
Таxes
40%
(2,000)
(8,800)
(16,480)
(16,480)
(22,240)
(28,000)
(28,000)
NOPAT
3,000
(12,000)
13,200
24,720
24,720
33,360
42,000
42,000
Add back Depr
50,000
80,000
48,000
28,800
28,800
14,400
Sale of Equip
Тах
Opportunity Cost - Old Equip Salvage
Opportunity Cost - Tax on Salvage
Original FCF
(250,000)
(250,000)
53,000
68,000
61,200
53,520
53,520
47,760
42,000
42,000
Corrected FCF
53,000
68,000
61,200
53,520
53,520
47,760
42,000
42,000
Discount Rate
6%
Original NPV
Corrected NPV (Calculate)
82,243
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