P 11 CF used to evaluate the investment in the new chip

CF with project CF w/o project Incremental CF

Revenue from sales of new chips 1,440
Cost of production of new chips (396)
Revenue from sales of old chips $ 270 $ 900
Cost of production of old chips (81) (270)
Total cash flows 1,233 630 603

CF used to evaluate
Loss from reduced demand of old chips $ (630)
Saving from cost of production of old chips $ 189
Total cash flows (441)

P 16
Year MACRS % See Page 228 for more
1 details about MACRS
14.29%
2 24.49%
3 17.49%
4 12.49%
5 8.93%
77.69%
Accumulated Depreciation = $ 7.77
Book value = $ 2.23
Sold price = $ 4.50
Profit from selling the machine = $ 2.27
Sales tax = $ 0.79
After tax CF from selling the machine = $ 3.71
P21 Year 0 1 2 3 4
A. Fixed assests
Investment in fixed assests $ 45,000
Sales of fixed assets
CF, invest in fixed assets $ (45,000)

B. Working Capital
Working Capital $ 8,000 $ 6,000 $ 4,000 $ 2,000 $ -
Change in working capital $ 8,000 $ (2,000) $ (2,000) $ (2,000) $ (2,000)
CF, invest. In WC $ (8,000) $ 2,000 $ 2,000 $ 2,000 $ 2,000

C. Operations
Revenues $ 40,000 $ 30,000 $ 20,000 $ 10,000
 Expenses $ 16,000 $ 12,000 $ 8,000 $ 4,000
Depriciation $ 11,250 $ 11,250 $ 11,250 $ 11,250
Pretax profit $ 12,750 $ 6,750 $ 750 $ (5,250)
Tax here = 0 because the company makes a loss
Tax $ 5,100 $ 2,700 $ 300 $ -
Profit after tax $ 7,650 $ 4,050 $ 450 $ (5,250)
Cash flow from operations $ 18,900 $ 15,300 $ 11,700 $ 6,000

D. Project valuation
Total project cash flow $ (53,000) $ 20,900 $ 17,300 $ 13,700 $ 8,000
PV of Cash flow $ (53,000) $ 18,661 $ 13,791 $ 9,751 $ 5,084
NPV $ (5,712)
IRR -5.40%
Required rate of return 12%
Tax rate 40%

P23 Q&D DIR

Innitial investment $ 10 $ 12
Useful life $ 5 $ 8
Depreciation $ 2 $ 1.50
Depreciation tax shield $ 0.70 $ 0.52
Operation cost $ 1.00 $ 1.00
PV of Depreciation tax shield 2.52 2.61
Opportunity cost 12% 12%
NPV 7.477 9.392 $ 0.57
EAC 2.074 1.891
Tax rate 35%
ause the company makes a loss
P3 Year 0 1 2 3 4 5 monthly yearly
A. Fixed assests
Investment in fixed assests $ 24,000 Sales (units) 700 8,400
Oven $ 5,000 Selling price $ 12
Freezer $ 7,000 Sales ($) $ 100,800
Alarm $ 2,000 Ingredient costs per unit $ 3
Mis cooking utensils $ 10,000 Total Ingredient costs $ 25,200
Sales of fixed assets Soft drink profit per unit $ 1.5
CF, invest in fixed assets $ (24,000) Total Soft drink profit $ 6,300.00
Advertising cost $ 500 $ 6,000
B. Working Capital Electricity and tel $ 800 $ 9,600
Working Capital $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ - Casual wages $ 3,000 $ 36,000
Change in working capital $ 20,000 $ - $ - $ - $ - $ (20,000) Lease cost $ 800 $ 9,600
CF, invest. In WC $ (20,000) $ - $ - $ - $ - $ 20,000 Car operating expenses $ 3,000

C. Operations
Revenues from Pizza $ 100,800 $ 100,800 $ 100,800 $ 100,800 $ 100,800
Profit from soft drinnk $ 6,300 $ 6,300 $ 6,300 $ 6,300 $ 6,300
Expenses $ 89,400 $ 89,400 $ 83,400 $ 83,400 $ 83,400
Total Ingredient costs $ 25,200 $ 25,200 $ 25,200 $ 25,200 $ 25,200
Advertising cost $ 6,000 $ 6,000
Electricity and tel $ 9,600 $ 9,600 $ 9,600 $ 9,600 $ 9,600
Casual wages $ 36,000 $ 36,000 $ 36,000 $ 36,000 $ 36,000
Lease cost $ 9,600 $ 9,600 $ 9,600 $ 9,600 $ 9,600
Car operating expenses $ 3,000 $ 3,000 $ 3,000 $ 3,000 $ 3,000
Depriciation $ 7,800 $ 7,800 $ 7,800 $ 7,800 $ 7,800
Oven $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Freezer $ 1,400 $ 1,400 $ 1,400 $ 1,400 $ 1,400
Alarm $ 400 $ 400 $ 400 $ 400 $ 400
Mis cooking utensils $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000
Car $ 3,000 $ 3,000 $ 3,000 $ 3,000 $ 3,000
EBT (Eranings before tax) $ 9,900 $ 9,900 $ 15,900 $ 15,900 $ 15,900
Tax $ 1,980 $ 1,980 $ 3,180 $ 3,180 $ 3,180
Profit after tax $ 7,920 $ 7,920 $ 12,720 $ 12,720 $ 12,720
Cash flow from operations $ 15,720 $ 15,720 $ 20,520 $ 20,520 $ 20,520

D. Project valuation
Total project cash flow $ (44,000) $ 15,720 $ 15,720 $ 20,520 $ 20,520 $ 40,520
PV of Cash flow $ (44,000) $ 12,576 $ 10,061 $ 10,506 $ 8,405 $ 13,278
NPV $ 10,826
IRR 7.85%

Required rate of return 25%

Tax rate 20%
 Useful life
Salvage value

P4 Year 0 1 2 3 4 5 6 7 8 9 10
A. Fixed assests
Investment in fixed assests $ 1,600,000
Land $ 1,000,000
Farm buildings $ 200,000
Farm equipment $ 400,000
Sales of fixed assets $ 1,050,000
Farm buildings $ 50,000After -tax salvag
Land $ 1,000,000 Salvage - (Salvage
CF, invest in fixed assets $ (1,600,000) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 1,050,000

B. Working Capital
Working Capital $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ -
Change in working capital $ 250,000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ (250,000)the Working capi
CF, invest. In WC $ (250,000) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 250,000termination of th

C. Operations
Revenues $ 2,480,000 $ 2,480,000 $ 2,480,000 $ 2,480,000 $ 2,480,000 $ 2,480,000 $ 2,480,000 $ 2,480,000 $ 2,480,000 $ 2,480,000
Expenses $ 2,200,000 $ 2,200,000 $ 2,200,000 $ 2,200,000 $ 2,200,000 $ 2,200,000 $ 2,200,000 $ 2,200,000 $ 2,200,000 $ 2,200,000
Depreciation $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000
Land $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Farm buildings $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000
Farm equipment $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 40,000
EBT (Earnings before tax) $ 225,000 $ 225,000 $ 225,000 $ 225,000 $ 225,000 $ 225,000 $ 225,000 $ 225,000 $ 225,000 $ 225,000
Tax $ 67,500 $ 67,500 $ 67,500 $ 67,500 $ 67,500 $ 67,500 $ 67,500 $ 67,500 $ 67,500 $ 67,500
Profit after tax $ 157,500 $ 157,500 $ 157,500 $ 157,500 $ 157,500 $ 157,500 $ 157,500 $ 157,500 $ 157,500 $ 157,500
Cash flow from operations $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 212,500

D. Project valuation Add back Depreciation to Profit ater tax

Total project cash flow $ (1,850,000) $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 212,500 $ 1,512,500
PV of Cash flow $ (1,850,000) $ 193,182 $ 175,620 $ 159,654 $ 145,140 $ 131,946 $ 119,951 $ 109,046 $ 99,133 $ 90,121 $ 583,134
NPV $ (43,073)
IRR -0.38%
Required rate of return 10%
Tax rate 30%
P6 Required Rate of return 10%
Year 0 1 2 3 4 5
Investment $ (300,000)
Cost savings (after tax) $ 88,000 $ 88,000 $ 88,000 $ 88,000 $ 88,000
CF $ (300,000) $ 88,000 $ 88,000 $ 88,000 $ 88,000 $ 88,000
PV $ (300,000) $ 80,000 $ 72,727 $ 66,116 $ 60,105 $ 54,641
NPV $ 33,589
IRR 3.90%

P7 Tax rate 28%

Required rate of return 15%

Keep 1 yr Year 0 1 2 3 4 5
Depreciation $ 14,000
Maintenance cost $ 11,000
Effect on tax payable $ (25,000)
Effect on tax paid $ (7,000)

Project
evaluation Year 0 1
Cost of machine $ (64,000)
Salvage $ 50,000
Maintenance cost $ 11,000
Tax benefit (tax shield) $ 7,000
Net project Cash Flows $ (64,000) $ 46,000
PV of cash flow $ (64,000) $ 40,000
Discount factor 0.87
EAA $ (27,600)

Keep 3 yrs Year 0 1 2 3 4 5

Depreciation $ 11,333 $ 11,333 $ 11,333
Maintenance cost $ 11,000 $ 13,000 $ 18,000
Effect on tax payable $ (22,333) $ (24,333) $ (29,333)
Effect on tax paid $ (6,253) $ (6,813) $ (8,213)
Project
evaluation Year 0 1 2 3
Cost of machine $ (64,000)
Salvage $ 30,000
Maintenance cost $ (11,000) $ (13,000) $ (18,000)
Tax benefit (tax shield) $ 6,253 $ 6,813 $ 8,213
Net project Cash Flows $ (64,000) $ (4,747) $ (6,187) $ 20,213
PV of cash flow $ (64,000) $ (4,128) $ (4,678) $ 13,291
Discount factor 2.283
EAA $ (26,066)

Keep 5 yrs Year 0 1 2 3 4 5

Depreciation $ 12,100 $ 12,100 $ 12,100 $ 12,100 $ 12,100
Maintenance cost $ 11,000 $ 13,000 $ 18,000 $ 24,000 $ 28,000
Effect on tax payable $ (23,100) $ (25,100) $ (30,100) $ (36,100) $ (40,100)
Effect on tax paid $ (6,468) $ (7,028) $ (8,428) $ (10,108) $ (11,228)

Project
evaluation Year
Cost of machine $ (64,000)
Salvage $ 3,500
Maintenance cost $ (11,000) $ (13,000) $ (18,000) $ (24,000) $ (28,000)
Tax benefit (tax shield) $ 6,468 $ 7,028 $ 8,428 $ 10,108 $ 11,228
Net project Cash Flows $ (64,000) $ (4,532) $ (5,972) $ (9,572) $ (13,892) $ (13,272)
PV of cash flow $ (64,000) $ (3,941) $ (4,516) $ (6,294) $ (7,943) $ (6,599)
Discount factor 3.35
EAA $ (27,830)

P8 Tax rate
Required rate of return 16% There is no tax rate given, so we ignore the impact of tax on cashflow (e.g. if there is a tax rate, we have to consider the tax
Year 0 1 2 to the decrease
increases due 3 4
of cash operating cost) 5 6 7
Innitial Cost $ 28,000
Savings in cash operating cost
(assume after-tax) $ 10,000 $ 8,000 $ 6,000 $ 5,000 $ 4,000 $ 3,000 $ 3,000
Net project CF $ (28,000) $ 10,000 $ 8,000 $ 6,000 $ 5,000 $ 4,000 $ 3,000 $ 3,000
PV $ (28,000) $ 8,621 $ 5,945 $ 3,844 $ 2,761 $ 1,904 $ 1,231 $ 1,061
NPV $ (2,631)
IRR -21%
alvage =
alvage - book value) x tax rate

g capital is recovered at the

of the venture
 Year 1 2 3 4 5 6
A. Fixed assests
Investment in fixed assests
Sales of fixed assets
CF, invest in fixed assets

B. Working Capital
Working Capital
Change in working capital
CF, invest. In WC

C. Operations
Revenues
Expenses
Depriciation
Pretax profit
Tax
Profit after tax
Cash flow from operations

D. Project valuation
Total project cash flow
PV of Cash flow
NPV

Required rate of return

Tax rate
Tax rate 28%
Required rate of return 15%

Year 0 1 2 3 4 5
Innitial Cost $ 64,000
Salvage value at the end of
each year $ 40,000
Depreciation $ 12,000 $ 12,000
Depreciation tax shield $ -
Maintenance cost $ 11,000 $ 13,000
After tax cost
CF $ (64,000) $ (11,000) $ 27,000
PV $ (64,000) $ (9,565) $ 20,416
NPV $ (53,149)
IRR -51%

1.62570888468809 $ (32,693.02)