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INPUT DATA:
Variable data:
Sales Revenue Increase $1,150,000 Cost of Borrowing
New machine price $800,000 Tax rate
Modification Cost 75,000 Operating Cost Increase (DCGS)
Receivables (Sales) 45 Salvage Value
Inventory (CGS) 24
Payables (CGS) 18
Fixed data:
MACRS class life 5
Useful life (old machine) 10
Year 1 2 3 4 5
------------------------- --------------------------- -------------------------- -------------------------- ------------------------
Revenue Increase $1,150,000 $1,150,000 $1,150,000 $1,150,000 $1,150,000
Oper. Cost Increase $920,000 $920,000 $920,000 $920,000 $920,000
Depreciation 175,000 280,000 166,250 105,000 96,250
------------------------- --------------------------- -------------------------- -------------------------- ------------------------
EBIT 55,000 (50,000) 63,750 125,000 133,750
Tax 22,000 (20,000) 25,500 50,000 53,500
------------------------- --------------------------- -------------------------- -------------------------- ------------------------
A.T. Income (NOPAT) 33,000 (30,000) 38,250 75,000 80,250
Add Back Depreciation 175,000 280,000 166,250 105,000 96,250
Recovery of Working Capital
Salvage Value Cash Flow
Net cash flow $208,000 $250,000 $204,500 $180,000 $176,500
=============== ================ =============== =============== ==============
$59,539
13.46%
12.63%
1.06
5.08
9.39
$ 15,000
$ 6,000
$ 9,000
6 7 8 9 10
-------------------------
$1,150,000 $1,150,000 $1,150,000 $1,150,000 $1,150,000
$920,000 $920,000 $920,000 $920,000 $920,000
52,500 0.00 0.00 0.00 0.00
------------------------- -------------------------- ------------------------- ----------------------- ---------------------------
177,500 230,000 230,000 230,000 230,000
71,000 92,000 92,000 92,000 92,000
------------------------- -------------------------- ------------------------- ----------------------- ---------------------------
106,500 138,000 138,000 138,000 138,000
52,500 0 0 0 0
156,904
9,000
$159,000 $138,000 $138,000 $138,000 $303,904
=============== =============== ============== ============= ================
Fixed data:
MACRS class life 5
Useful life (old machine) 10
MODEL-GENERATED DATA:
Year MACRS
Rate Dep. Book
--------------------- ------------------------------ ------------------------- ---------------------------
1 20% $140,000 $560,000
2 32% $224,000 $336,000
3 19% $133,000 $203,000
4 12% $84,000 $119,000
5 11% $77,000 $42,000
6 6% $42,000 $0
Year 1 2 3
------------------------- --------------------------- --------------------------
Revenue Increase $1,150,000 $1,150,000 $1,150,000
Oper. Cost Increase $970,000 $970,000 $970,000
Depreciation 140,000 224,000 133,000
------------------------- --------------------------- --------------------------
EBIT 40,000 (44,000) 47,000
Tax 16,000 (17,600) 18,800
------------------------- --------------------------- --------------------------
A.T. Income (NOPAT) 24,000 (26,400) 28,200
Add Back Depreciation 140,000 224,000 133,000
Recovery of Working Capital
Salvage Value Cash Flow
Net cash flow $164,000 $197,600 $161,200
=============== ================ ===============
KEY OUTPUT:
NPV: $13,782
IRR 12.40%
MIRR 12.18%
PI 1.02
PayBack 5.44
DiscPayBack 9.85
4 5 6 7 8
-------------------------- ------------------------ -------------------------
$1,150,000 $1,150,000 $1,150,000 $1,150,000 $1,150,000
$970,000 $970,000 $970,000 $970,000 $970,000
84,000 77,000 42,000 0.00 0.00
-------------------------- ------------------------ ------------------------- -------------------------- -------------------------
96,000 103,000 138,000 180,000 180,000
38,400 41,200 55,200 72,000 72,000
-------------------------- ------------------------ ------------------------- -------------------------- -------------------------
57,600 61,800 82,800 108,000 108,000
84,000 77,000 42,000 0 0
$1,150,000 $1,150,000
$970,000 $970,000
0.00 0.00
----------------------- ---------------------------
180,000 180,000
72,000 72,000
----------------------- ---------------------------
108,000 108,000
0 0
157,726
12,000
$108,000 $277,726
============= ================
$108,000 $277,726
============= ================
394,274 672,000
$38,946 $89,420
(75,638) 13,782
9.85
The project is worth to be undertaken irrespective of choice between Machine A or B. This is because in both cases, the NPV is positive
Machine A is the best machine as it results in higher NPV relative to B and also it resulted in higher IRR and have lower payback than B.
Profitability Index of both machine is more than 1 but is higher in case of Machine A
es, the NPV is positive
e lower payback than B.