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Chapter 10 PDF
Chapter 10 PDF
ISBN: 0-13-611848-8
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Income Statement
Revenues
Expenses
O&M
Depreciation
Taxable Income
Income Taxes (40%)
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities
Investment
Salvage
Gains Tax
Net Cash Flow
PW(15 %)
$35,000
$35,000
$35,000
$35,000
$35,000
$35,000
$12,000
$13,000
$12,000
$20,800
$12,000
$12,480
$12,000
$7,488
$12,000
$7,488
$12,000
$3,744
$10,000
$4,000
$2,200
$880
$10,520
$4,208
$15,512
$6,205
$15,512
$6,205
$19,256
$7,702
$6,000
$1,320
$6,312
$9,307
$9,307
$11,554
$6,000
$13,000
$1,320
$20,800
$6,312
$12,480
$9,307
$7,488
$9,307
$7,488
$11,554
$3,744
($65,000)
$0
$0
($65,000)
$5,170.15
$19,000
$22,120
$18,792
$16,795
$16,795
$15,298
$150,000
$150,000
$150,000
$150,000
$150,000
$150,000
$150,000
$42,000
$67,200
$40,320
$24,192
$24,192
$12,096
$0
$108,000
$37,800
$82,800
$28,980
$109,680
$38,388
$125,808
$44,033
$125,808
$44,033
$137,904
$48,266
$150,000
$52,500
$70,200
$53,820
$71,292
$81,775
$81,775
$89,638
$97,500
$70,200
$42,000
$53,820
$67,200
$71,292
$40,320
$81,775
$24,192
$81,775
$24,192
$89,638
$12,096
$97,500
$0
($210,000)
$60,000
($21,000)
($210,000) $112,200
$261,029.59
$121,020
$111,612
$105,967
$105,967
$101,734
$136,500
Page | 1
$3,833,542
$3,833,542
$3,833,542
$3,833,542
$3,833,542
$435,000
$294,872
$485,000
$307,692
$535,000
$307,692
$585,000
$307,692
$635,000
$294,872
Taxable Income
Income Taxes (35%)
$3,103,670
$1,086,285
$3,040,850
$1,064,297
$2,990,850
$1,046,797
$2,940,850
$1,029,297
$2,903,670
$1,016,285
Net Income
$2,017,386
$1,976,552
$1,944,052
$1,911,552
$1,887,386
$2,017,386
$294,872
$1,976,552
$307,692
$1,944,052
$307,692
$1,911,552
$307,692
$1,887,386
$294,872
Annual rate
($12,000,000)
($3,500,000)
$13,500,000
$3,500,000
($1,054,487)
($15,500,000) $2,312,257
$0.00
$76,670.84
$2,284,244
$2,251,744
$2,219,244
$18,127,770
per apartment
$10,000
$10,000
$3,000
$3,000
$3,000
$2,400
Taxable Income
Income Taxes (40%)
$4,000
$1,600
$4,600
$1,840
Net Income
$2,400
$2,760
$2,400
$3,000
$2,760
$2,400
($15,000)
$10,000
($160)
($15,000)
$1,037.81
$5,400
$15,000
Page | 2
Cost Salvage
Book
Gains
Gains
base
value
value
(losses)
taxes
$100,000 $115,000 $100,000 $115,000
$6,000
$500,000 $575,000 $436,965 $138,035 $55,214
$500,000 $50,000 $133,873 ($83,873) ($33,549)
Income Statement
Revenues (savings)
Expenses:
O&M costs
Depreciation :
Building
Equipment
Taxable Income
Income Taxes
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Land
Building
Machines
Gains Tax
Land
Building
Equipment
Net Cash Flow
$2,500,000
$2,500,000
$2,500,000
$2,500,000
$2,500,000
1,280,000
1,280,000
1,280,000
1,280,000
1,280,000
12,287
71,450
1,136,264
454,505
12,821
122,450
1,084,730
433,892
12,821
87,450
1,119,730
447,892
12,821
62,450
1,144,730
457,892
12,287
22,325
1,185,389
474,155
$681,758
$650,838
$671,838
$686,838
$711,233
$681,758
$83,737
$650,838
$135,271
$671,838
$100,271
$686,838
$75,271
$711,233
$34,612
($100,000)
($500,000)
($500,000)
115000
575000
50000
($6,000)
($55,214)
$33,549
($1,100,000)
$765,495
$786,108
$772,108
$762,108
$1,458,180
Page | 3
6400
400
$20,000
$50,000
6400
6400
6400
400
400
457
$20,000 $20,000 $22,857
$80,000 $48,000 $28,800
6400
533
$26,667
$14,400
Taxable Income
Income Taxes (35%)
Net Income
$15,000
Page | 4
10.7
Income Statement
Revenues
Expenses
Software development
O&M
Depreciation
$20,000
$15,000 $15,000 $15,000 $15,000 $15,000
$20,800 $33,280 $19,968 $11,981 $5,990
Taxable Income
Income Taxes (35%)
Net Income
Page | 5
10.8
0
Income Statement
Revenues
Expenses
O&M
Depreciation
$20,720
$20,720
$20,720
$20,720
$20,720
$15,000
$3,700
$15,000
$5,920
$15,000
$3,552
$15,000
$2,131
$15,000
$1,066
Taxable Income
Income Taxes (40%)
$2,020
$808
($200)
($80)
$2,168
$867
$3,589
$1,436
$4,654
$1,862
Net Income
$1,212
($120)
$1,301
$2,153
$2,793
$1,212
$3,700
($120)
$5,920
$1,301
$3,552
$2,153
$2,131
$2,793
$1,066
($18,500)
$1,850
$112
($18,500)
($10.74)
Reject
11.98%
$4,912
$5,800
$4,853
$4,284
$5,821
10.9
0
Income Statement
Revenues
Expenses
Labor & Mat'l Costs
Depreciation
Net Income
Taxable Income
Income Taxes (40%)
$96,000
$85,200
$96,000
$30,000
$85,200
$48,000
($150,000)
$0
$0
($150,000) $126,000 $133,200 $125,520 $120,912 $120,912 $117,456
$362,986.22
Page | 6
10.10
0
Income Statement
Revenues
Expenses
O&M
Depreciation
$50,000
$46,000
IRR
$50,000
$73,600
$50,000
$44,160
$50,000
$26,496
$50,000
$13,248
Net Income
Taxable Income
Income Taxes (40%)
$92,400
$75,840
$92,400
$46,000
$75,840
$73,600
($230,000)
$5,000
$8,598
($230,000) $138,400 $149,440 $137,664 $130,598 $138,898
$237,588.96
53.95%
Page | 7
0
Income Statement
Revenues
Expenses
O&M
Depreciation
$14,000
$14,000
$14,000
$14,000
$14,000
$14,000
$14,000
$0
$18,332
$0
$24,448
$0
$8,146
$0
$4,076
$0
$0
$0
$0
$0
$0
Taxable Income
Income Taxes (35%)
($4,332) ($10,448)
($1,516) ($3,657)
$5,855
$2,049
$9,925
$3,474
$14,000
$4,900
$14,000
$4,900
$14,000
$4,900
Net Income
($2,815)
($6,791)
$3,805
$6,451
$9,100
$9,100
$9,100
($2,815)
$18,332
($6,791)
$24,448
$3,805
$8,146
$6,451
$4,076
$9,100
$0
$9,100
$0
$9,100
$0
($55,000)
$0
$0
($55,000)
$2,015.82
$15,516
$17,657
$11,951
$10,526
$9,100
$0
$0
$9,100
$0
$0
$9,100
Page | 8
0
Income Statement
Revenues
Expenses
O&M
Depreciation
$30,000
$51,525
$30,000
$25,780
$30,000
$0
Taxable Income
Income Taxes (40%)
$4,042
$1,617
($34,646)
($13,858)
$68,475
$27,390
$94,220 $120,000
$37,688 $48,000
Net Income
$2,425
($20,788)
$41,085
$56,532
$72,000
$2,425 ($20,788)
$115,958 $154,646
$41,085
$51,525
$56,532
$25,780
$72,000
$0
($347,910)
$0
$0
($347,910) $118,383 $133,858
$92,610
$82,312
$72,000
Page | 9
10
Income Statement
Revenues
Expenses
Production cost
Depreciation:
Building
Equipment
$775,000
$465,000
$38,462
$0
$36,860
$0
Taxable Income
Income Taxes (40%)
$273,141
$109,256
Net Income
$119,300
$163,884
$36,860 $38,462
$74,308 $127,348
$38,462
$90,948
$38,462
$64,948
$38,462
$46,436
$38,462
$46,384
$38,462
$46,436
$38,462
$23,192
($250,000)
($2,620,000) $230,467 $252,324 $237,764 $227,364 $219,959 $219,938 $219,959 $210,661 $201,385
($1,073,849.06)
$163,884
$36,860
$500,000
$800,000
$50,000
($52,500)
$111,506
($17,500)
$250,000
$1,842,250
(a) PW (15%) with working capital = $1, 073,849 , not an acceptable project.
(b) PW (15%) without working capital = $885, 645 , still not acceptable.
Page | 10
10.14
0
Income Statement
Revenues
Expenses
Operating cost
Depreciation
$65,800
$65,800
$65,800
$65,800
$65,800
$65,800
$9,150
$17,100
$9,150
$27,360
$9,150
$16,416
$9,150
$9,850
$9,150
$9,850
$9,150
$4,925
Taxable Income
Income Taxes (35%)
$39,550
$13,843
$29,290
$10,252
$40,234
$14,082
$46,800
$16,380
$46,800
$16,380
$51,725
$18,104
Net Income
$25,708
$19,039
$26,152
$30,420
$30,420
$33,621
$25,708
$17,100
$19,039
$27,360
$26,152
$16,416
$30,420
$9,850
$30,420
$9,850
$33,621
$4,925
($85,500)
$5,000
($1,750)
$15,000
($15,000)
($100,500) $42,808
$54,420.65
$46,399
$42,568
$40,270
$40,270
$56,796
Page | 11
10.15
-3
Income Statement
Revenues
Expenses
R&D expenses
Production cost
Depreciation:
Building
Equipment
($500,000)
-2
($2,500,000)
-1
($2,000,000)
10
$50,000,000 $55,000,000
$60,500,000
$66,550,000
$58,703,090 $52,832,781
$40,000,000 $44,000,000
$48,400,000
$53,240,000
$46,962,472 $42,266,224
$51,282
$734,700
$51,282
$524,700
$51,282
$374,700
$49,146
$428,700
$51,282
$267,900
$51,282
$267,600
$51,282
$267,900
$51,282
$133,800
$49,146
$0
Taxable Income
Income Taxes (40%)
($500,000)
($200,000)
($2,500,000)
($1,000,000)
($2,000,000)
($800,000)
$9,522,154 $10,214,018
$3,808,862 $4,085,607
$11,524,018
$4,609,607
$12,884,018
$5,153,607
Net Income
($300,000)
($1,500,000)
($1,200,000)
$5,713,292 $6,128,411
$6,914,411
$7,730,411
$7,716,029
$7,013,602 $6,310,446
$5,713,292 $6,128,411
$477,846 $785,982
$6,914,411
$575,982
$7,730,411
$425,982
$7,716,029
$185,082
$7,013,602 $6,310,446
$51,282
$49,146
($300,000) ($1,500,000)
($300,000)
($1,500,000)
($1,200,000)
($1,200,000)
$51,282
$0
$11,689,336 $10,517,410
$4,675,734 $4,206,964
($2,000,000)
($3,000,000)
$1,000,000
$300,000
($5,000,000)
($500,000) ($550,000)
($605,000)
($665,500)
($732,050)
$724,730
$652,257
$196,581
($120,000)
$587,031 $5,283,278
($10,000,000)
$10,252,872.91
$5,691,138 $6,364,393
$6,885,393
$7,490,893
$8,553,368
$7,651,914 $13,019,451
$805,255
Accept
43.28%
Page | 12
Effects of Borrowing
10.16
Revenues
Expenses
$3,833,542
$3,833,542
$3,833,542
$3,833,542
$3,833,542
$435,000
$294,872
$1,550,000
$485,000
$307,692
$1,296,114
$535,000
$307,692
$1,016,839
$585,000
$307,692
$709,637
$635,000
$294,872
$371,715
Taxable Income
Income Taxes (35%)
$1,553,670
$543,785
$1,744,736
$610,658
$1,974,011
$690,904
$2,231,213
$780,925
$2,531,955
$886,184
Net Income
$1,009,886
$1,134,078
$1,283,107
$1,450,288
$1,645,771
$1,009,886
$294,872
$1,134,078
$307,692
$1,283,107
$307,692
$1,450,288
$307,692
$1,645,771
$294,872
O&M
Depreciation
Debt interest
($12,000,000)
($3,500,000)
$13,500,000
$3,500,000
($1,054,487)
15,500,000
$0
$3,048,956.65
($2,538,861)
($2,792,747)
($3,072,022)
($3,379,224)
($3,717,146)
($1,234,104)
($1,350,977)
($1,481,223)
($1,621,244)
$14,169,010
Accept
Page | 13
10.17
0
Income Statement
Revenues
Expenses
Depreciation
Debt interest
$40,320
$15,000
$12,096
$6,000
$0
$3,000
Taxable Income
Income Taxes (35%)
$87,000
$30,450
$64,800
$22,680
$147,000
$51,450
Net Income
$56,550
$42,120
$61,542
$73,975
$75,925
$85,738
$95,550
$56,550
$42,000
$42,120
$67,200
$61,542
$40,320
$73,975
$24,192
$75,925
$24,192
$85,738
$12,096
$95,550
$0
$24,192
$9,000
$150,000
$42,000
$21,000
$24,192
$12,000
($210,000)
$60,000
($21,000)
$210,000
($30,000) ($30,000) ($30,000) ($30,000) ($30,000) ($30,000) ($30,000)
$0
$309,302.46
$68,550
$79,320
$71,862
$68,167
$70,117
$67,834
$104,550
Page | 14
10.18
Annual payment = $115, 000( A / P,11%,5) = $31,116
New after-tax cash flow
0
Income Statement
Revenues
Expenses
O&M
Depreciation
Debt interest
Taxable Income
Income Taxes (40%)
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities
Investment
Salvage
Gains Tax
Financing Activities
Borrowed funds
Principal repayment
Net Cash Flow
PW(15%)
$250,000
$250,000
$250,000
$250,000
$250,000
$50,000
$46,000
$12,650
$50,000
$73,600
$10,619
$50,000
$44,160
$8,364
$50,000
$26,496
$5,861
$50,000
$13,248
$3,084
$141,350
$56,540
$115,781
$46,312
$147,476
$58,990
$167,643
$67,057
$183,668
$73,467
$84,810
$69,469
$88,486
$100,586
$110,201
$84,810
$46,000
$69,469
$73,600
$88,486
$44,160
$100,586
$26,496
$110,201
$13,248
($230,000)
$5,000
$8,598
$115,000
($115,000)
$260,050.00
($18,466)
($20,497)
($22,751)
($25,254)
($28,032)
$112,344
$122,572
$109,894
$101,827
$109,015
10.19
0
Operating activities
Net income
Depreciation
Investment Activities
Investment
Salvage
Gains Tax(40%)
Financing Activities
Borrowed funds
Principal repayment
Net Cash Flow
PW(15%)
1
$10,400
$6,666
2
$12,019
$4,445
($20,000)
$8,000
$356
$10,000
($10,000)
$15,506
($4,762)
$12,304
($5,238)
$19,582
Note: Annual installments for the loan = $10, 000( A / P,10%, 2) = $5, 762
Page | 15
Input
Tax Rate(% )=
MARR(%) =
40
18
Output
PW(i) = $290,751
IRR(%) = 68.58%
(a)
Income Statement
Revenues:
Additional revenue
Labor & materials savings
Expenses:
Depreciation
Debt interest
Taxable Income
Income Taxes
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Financing Activities:
Borrowed funds
Principal repayment
Net Cash Flow
5-7
10
$
$
$
$
53,878
7,200
88,922
35,569
$53,353
$ 9,812
$ 140,188 $ 150,000 $ 150,000
$ 56,075 $ 60,000 $ 60,000
$84,113 $90,000 $90,000
120,000
$ (40,000) $ (40,000) $ (40,000)
($100,000) $56,095 $67,231 $63,231 $100,991 $97,858 $93,925 $90,000 $102,000
Page | 16
Input
Tax Rate(%) =
MARR(%) =
0
Output
PW(i) =
AE(i)=
35
18
1
($1,648,462)
($527,142)
4
Income Statement
Revenues (savings)
Expenses:
Depreciation
Debt interest
Taxable Income
Income Taxes (35%)
357,250
100,000
($457,250)
(160,038)
612,250
83,620
($695,870)
(243,555)
437,250
65,603
($502,853)
(175,998)
312,250
45,783
($358,033)
(125,312)
111,625
23,982
($135,607)
(47,462)
Net Income
($297,213)
($452,316)
($326,854)
($232,721)
($88,144)
(218,014) $ (239,816)
(138,486) $ 180,446
(232,721) $ (88,144)
312,250 $ 111,625
$ 250,000
$ 146,781
Page | 17
10.22
(a) After-tax cash flow
Input
Tax Rate(%) =
MARR(%) =
0
Net Income
35
15
1
Income Statement
Revenues (savings)
Expenses:
Depreciation
Debt interest
Taxable Income
Income Taxes (36%)
Output
PW(i) =
IRR(%) =
$4,977
$13,000
$13,000
$13,000
$13,000
$13,000
$13,000
$6,431
$5,400
$1,170
$409
$11,021
$4,735
($2,755)
($964)
$7,871
$3,989
$1,140
$399
$5,621
$3,155
$4,225
$1,479
$4,019
$2,220
$6,762
$2,367
$2,009
$1,173
$9,818
$3,436
$760
($1,791)
$741
$2,746
$4,395
$6,382
$760
$6,431
($1,791)
$11,021
$741
$7,871
$2,746
$5,621
$4,395
$4,019
$6,382
$2,009
($45,000)
$4,000
$1,411
$45,000
$0
($5,545)
($6,211)
($6,956)
($7,791)
($8,725)
($9,772)
$1,646
$3,019
$1,656
$576
($312)
$4,029
Page | 18
Input
Tax Rate(%) =
MARR(%) =
0
Output
PW(i) = $29,052
IRR(%) = 26.26%
40
14
1
Income Statement
Revenues (savings)
Expenses:
O&M cost
Depreciation
Debt interest
Taxable Income
Income Taxes (40%)
$14,852
5,941
Net Income
$8,911
$1,830
11000
17148
5000
11000
29388
4563
11000
20988
4082
11000
14988
3553
11000
10716
2971
11000
10704
2331
11000
10716
1627
11000
5352
852
Page | 19
Input Data
Tax Rate(%) =
MARR(%) =
Output
PW(9%) = $1,537
35
9
Financial Data
year
Depreciation
Book value
Salvage value
Gains tax
Loan payment schedule
Interest
Principal
Revenues
O & M costs
0
$
1
2
3
4
5
$ 2,666 $ 3,556 $ 1,185 $ 593
8,000 $ 5,334 $ 1,778 $ 593 $ - $ $ 2,000
$ (700)
Investment
Net proceeds from sale
Investment in working capital
Recovery of working capital
(1 - 0.35) (Revenue)
-(1 - 0.35) (Expenses)
-(1 - 0.35) (Debt interest)
+ (0.35) (Depreciation)
Borrowed funds
Principal repayment
Net Cash Flow
0
($8,000)
5
$1,300
$1,625
-
($8,000) $2,558
$2,870
$2,040
$1,832
$2,925
Page | 20
Input Data
Tax Rate(%)=
MARR(%)=
year
Depreciation
Book value
Salvage value
Gains tax
Loan payment schedule
Interest
Principal
Revenues
O&M costs
0
$8,000
Output
PW(9%)= $14,454
35
9
1
$2,666
5,334
2
$3,556
1,778
3
$1,185
593
4
$593
0
5
$0
0
$2,000
-700
Investment
Net proceeds from sale
Investment in working capital
Recovery of working capital
(1 - 0.35) (Revenue)
-(1 - 0.35) (Expenses)
-(1 - 0.35) (Debt interest)
+ (0.35) (Depreciation)
Borrowed funds
Principal repayment
Net Cash Flow
0
($8,000)
5
$1,300
$3,427
$3,937
$3,323
$3,352
$4,702
Page | 21
Input Data
Tax Rate(%) =
MARR(%) =
Output
PW(12%) = $86,984
40
12
Financial Data
year
Depreciation
Book value
Salvage value
Gains tax
Loan payment schedule
Interest
Principal
Revenues
O&M costs
1
2
3
4
5
$ 19,292 $ 33,062 $ 23,612 $ 16,862 $ 6,028
135,000 $ 115,709 $ 82,647 $ 59,036 $ 42,174 $ 36,146
$ 50,000
$ (5,542)
Investment
Net proceeds from sale
Investment in working capital
Recovery of working capital
(1 - 0.40) (Revenue)
-(1 - 0.40) (Expenses)
-(1 - 0.40) (Debt interest)
+ (0.40) (Depreciation)
Borrowed funds
Principal repayment
Net Cash Flow
5
$44,459
135,000
$ (22,113) $ (24,324) $ (26,756) $ (29,432) $ (32,375)
$0
$18,304
$22,927
$18,174
$14,404
$53,352
Page | 22
$ 21,700
$ (12,400)
$ (4,018)
$ 3,257
$ 21,700
$ (12,400)
$ (4,018)
$ 5,584
$ 21,700
$ (12,400)
$ (4,018)
$ 3,988
$ 21,700
$ (12,400)
$ (4,018)
$ 2,849
$ 21,700
$ (12,400)
$ (4,018)
$ 2,035
$ 21,700
$ (12,400)
$ (4,018)
$ 2,035
$ 21,700
$ (12,400)
$ (4,018)
$ 2,035
8,539
$ 10,866
10
(60,000)
(1 - 0.38)(Revenue)
-(1 - 0.38)(Expenses)
-(1 - 0.38) (Debt interest)
+(0.38)(Depreciation)
Borrowed funds
Principal repayment
54,000
(6,000) $
9,270
11
8,131
12
7,317
13
7,317
14
Investment
Net proceeds from sale
Investment in working capital
Recovery of working capital
(1 - 0.38)(Revenue)
-(1 - 0.38)(Expenses)
-(1 - 0.38) (Debt interest)
+(0.38)(Depreciation)
5,580
Borrowed funds
Principal repayment
Net cash flow
15
$
$
$
$
7,317
$ (54,000)
$
6,299
PW(18%) =
5,282
$ (48,718) $
9,300
9,300
9,300
9,300
$ 14,880
Page | 23
Input
Tax Rate(%) =
MARR(%) =
Option 1: Financing with retained earnings
0
Income Statement
Output
PW(i) = $161,321
IRR(%) = 42.46%
39
18
1
Revenues (savings)
Expenses:
O&M costs
Depreciation
Debt interest
Taxable Income
Income Taxes
$22,000
28,580
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Working capital
Financing Activities:
Borrowed funds
Principal repayment
Net Cash Flow
$75,286
$22,000
48,980
$62,842
$22,000
34,980
$71,382
$22,000
24,980
$77,482
$22,000
17,860
$81,825
$22,000
8,920
$87,279
(200,000)
(25,000)
$ 30,000
$ 2,223
$ 25,000
$99,685 $153,422
Page | 24
Output
PW(i) = $214,469
IRR(%) = 263.36%
39
18
1
$22,000
$48,980
$21,043
$22,000
$34,980
$17,730
Taxable Income
Income Taxes
$99,420
$38,774
$81,977
$31,971
Net Income
$60,646
$50,006
$60,567
$68,930
$75,807
$84,099
$60,646
$28,580
$50,006
$48,980
$60,567
$34,980
$68,930
$24,980
$75,807
$17,860
$84,099
$8,920
$22,000
$24,980
$14,020
$22,000
$17,860
$9,866
$22,000
$8,920
$5,212
-$200,000
$30,000
$2,223
$25,000
-$25,000
$200,000
-$25,000
-$24,645
-$27,603
-$30,915
-$34,625
-$38,780
-$43,433
$64,581
$71,384
$64,632
$59,285
$54,888 $106,809
Page | 25
Input
Tax Rate(%) =
MARR(%) =
Output
PW(i) = $170,092
IRR(%) = 101.06%
39
18
Income Statement
Revenues (savings)
Expenses:
O&M costs
Leasing costs
Debt interest
$55,000
$22,000
$55,000
$22,000
$55,000
$22,000
$55,000
$22,000
$55,000
$22,000
$55,000
Taxable Income
Income Taxes
-$55,000
-$21,450
$97,000
$37,830
$97,000
$37,830
$97,000
$37,830
$97,000
$37,830
$97,000 $152,000
$37,830 $59,280
Net Income
-$33,550
$59,170
$59,170
$59,170
$59,170
$59,170
$92,720
-$33,550
$59,170
$59,170
$59,170
$59,170
$59,170
$92,720
-$25,000
-$58,550
$22,000
$25,000
$59,170
$59,170
$59,170
$59,170
$59,170 $117,720
Page | 26
10.28
Option 1: Lease
PW (12%)lease = $144,000(1 0.40)(1 + ( P / A,12%,29))
= $779,483.52
Option 2: Purchase
-
40
12
$ 15,972
$ 40,000
$ (55,972)
$ (22,389)
$ (33,583)
$ 16,667
$ 40,000
$ (56,667)
$ (22,667)
$ (34,000)
$ 16,667
$ 40,000
$ (56,667)
$ (22,667)
$ (34,000)
Income Statement
Revenues:
Expenses:
Depreciation
Property tax
Taxable Income
Income Taxes
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment(land)
Investment(structure)
Salvage
Gains Tax
Net Cash Flow
Output
PW(i) = ($931,551)
$
$
$
$
$
16,667
40,000
(56,667)
(22,667)
(34,000)
29
30
$ 16,667 $ 15,972
$ 40,000 $ 40,000
$ (56,667) $ (55,972)
$ (22,667) $ (22,389)
$ (34,000) $ (33,583)
(150,000)
(650,000)
$ 215,000
$ 34,556
(800,000) $ (17,611) $ (17,333) $ (17,333) $ (17,333) $ (17,333) $ 231,944
Page | 27
Option 3: Remodel
-
Income Statement
Revenues:
Expenses:
Depreciation
Property tax
Lease fee(Parking lot)
Taxable Income
Income tax
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment(Remodeling)
Salvage
Gain tax
Net Cash Flow
Input
Tax Rate(% )=
MARR(%) =
40
12
$ 7,372
$ 33,000
$9,000
$ (49,372)
$ (19,749)
$ (29,623)
$ 7,692
$ 33,000
$9,500
$ (50,192)
$ (20,077)
$ (30,115)
$ 7,692
$ 33,000
$10,000
$ (50,692)
$ (20,277)
$ (30,415)
Output
PW(i) = ($494,425)
29
30
$
$
7,692
33,000
$23,000
$ (63,692)
$ (25,477)
$ (38,215)
$ 7,372
$ 33,000
$23,500
$ (63,872)
$ (25,549)
$ (38,323)
(38,215) $ (38,323)
7,692 $ 7,372
$ 30,000
$ 15,949
(30,523) $ 14,997
$
$
7,692
33,000
$10,500
$ (51,192)
$ (20,477)
$ (30,715)
(300,000)
PW(12%)remodel = $494,425
Option 3 is the least cost alternative.
Page | 28
$380.61 $423.80
$470.56
$227,78
$826.82
Plant A
Unit cost:
$2,158,510
= $0.04317 / kWh
50, 000, 000 kWh
Plant B
Page | 29
= $191.76
Unit cost:
$2,133,330
= $0.04267 / kWh
50, 000, 000 kWh
Plant C
= $212.92
Unit cost:
$2,183, 010
= $0.04366 / kWh
50, 000, 000 kWh
Page | 30
P2 = $14,816( P / A,15%, 4)
= $42, 299
In
Sum
$9,000
$5,400
$14,400
$5,760
$14,400
$4,270
$18,670
$7,468
$8,640
$3,005
$11,645
$4,658
$2,592
$1,587
$4,179
$1,672
P3=
Combined tax
savings
$14,674
$34,632
Book value=
$10,368
Salvage=
Taxable Gain=
Gain tax=
Net proceeds from sale=
$10,000
($368)
($147)
$10,147
PW (15%)buy = P1 + P2 + P3 + P4 = $23,878
(c) Should the truck be leased or purchased? The leasing option is a better
choice.
10.31
PW of after-tax O&M
P2 = $37,857( P / A,15%, 4)
= $108, 080
n
Dn
In
1 $24,000 $12,000
2 $38,400 $9,414
3 $23,040 $6,570
$10,353(0.40) = $4,141
$6,912
$3,441
Page | 32
Output
PW(i) = ($143,406)
40
15%
1
Income Statement
Revenues (savings)
Expenses:
O&M cost
Depreciation
Debt interest
50000
24000
12000
50000
38400
9414
50000
23040
6570
50000
6912
3441
Taxable Income
Income Taxes (40%)
($86,000)
(34,400)
($97,814)
(39,126)
($79,610)
(31,844)
($60,353)
(24,141)
Net Income
($51,600)
($58,689)
($47,766)
($36,212)
($53,456)
($48,731)
($56,012)
($40,656)
Page | 33
PW of after-tax leasing
P2 = $44,000(1 0.40) $44,000(1 0.40)( P / A,15%,3)
= $86,677
P = P1 + P2
= $155,196
Input
Tax Rate(%) =
MARR(%) =
0
Output
PW(i) = ($155,197)
40
15%
1
Income Statement
Revenues (savings)
Expenses:
O&M cost
Leasing cost
Debt interest
$0
$0
$0
$0
40000
$44,000
40000
$44,000
40000
$44,000
40000
$44,000
Taxable Income
Income Taxes (40%)
($44,000)
(17,600)
($84,000)
(33,600)
($84,000)
(33,600)
($84,000)
(33,600)
($40,000)
(16,000)
Net Income
($26,400)
($50,400)
($50,400)
($50,400)
($24,000)
($50,400)
($50,400)
($50,400)
($24,000)
(c) Should ICI buy or lease the equipment? The buying option is a better choice.
Page | 34
10.32
(a) PW of after-tax cash flow of leasing:
PW (15%)lea s e = $70, 000(1 0.4)( P / A,15%, 4)
= $119,909
(b) PW of after-tax cash flow of owning:
Dn
In
Sum
1
2
3
4
P3=
$66,660
$88,900
$29,620
$14,820
$77,148
$20,000
$15,691
$10,950
$5,736
$86,660
$104,591
$40,570
$20,556
Combined tax
savings
$34,664
$41,836
$16,228
$8,222
$200,000
$0
$20,000
$20,000
$8,000
$12,000
10.33
(a) Determine the annual cash flows for each option.
Buy option:
End of period
1
2
Investment
Net proceeds
$5,943
(0.65) I n
($1,151)
($740)
($275)
+0.35 Dn
$1,132
$1,811
$543
($4,730)
($4,749)
($5,362)
($4,291)
($6,078)
$134
Loan repayment
Net cash flow
$16,170
$0
Lease option:
End of period
1
2
Security deposit
Refund
3
$500
(0.65) Ln
Net cash flow
($500)
($3,315)
($3,315)
($3,315)
($3,315)
($3,315)
($2,815)
(b)
PW (13%)buy = $7, 470
PW (13%)lease = $7,981
10.34
(a) Boggs PW cost of leasing:
PW (15%)leasing = (0.60)($15, 000 + $15, 000( P / A,15%, 2)
=$23,631
(b) Boggs PW cost of owning:
Page | 36
10.35
(a) Purchase with debt:
PW of after-tax revenue:
P1 = $10, 000(1 0.30)( P / A,10%,5) = $26,536
Page | 37
PW of after-tax expenses:
P2 = $2,500(1 0.3)( P / A,10%,5) = $6, 634
n
1
2
3
4
5
Dn
$3,571
$6,122
$4,373
$3,123
$1,116
In
Combined Tax Savings
$3, 000 $6,571(0.30) = $1,971
$2,528 $8, 650(0.30) = $2,595
$1,999 $6,372(0.30) = $1,912
$1, 407 $4,530(0.30) = $1,359
$743 $1,859(0.30) = $558
10.36 Setting the lease payment schedule: Let X denote the annual lease receipt
from tractor lease. We will assume that these lease payments are received at
year end.
Cash Flow
Elements
Investment
Net Proceeds:
Security Deposit
+(0.65)(Rn )
+(0.35)Dn
Net Cash Flow
0
-$53,000
End of Period
1
0.65X
$5,936
0.65X
$5,936
$21,423*
-$1,500
0.65X
$1,781
0.65X
$21,704
$1,500
-$51,500
0.65X
$3,710
0.65X
$3,710
Note:
Page | 39
ST 10.2
(a), (b)
0
Income Statement
Revenue
Expenses:
Production costs
Depreciation :
Building
Machines
Taxable Income
Income Taxes (40%)
$
$
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Land
Building
Machines
Gains Tax
Land
Building
Equipment
Net Cash Flow
$
$
$
5-7
10-11
12
51,000
51,000
51,000
51,000
85,000
$ 136,000
$ 136,000
$ 136,000
$ 136,000
36,000
36,000
36,000
36,000
60,000
96,000
96,000
96,000
96,000
$
$
1,106
14,290
$
$
1,154
24,490
$
$
1,154
17,490
$
$
1,154
12,490
$
$
1,154
8,930
$
$
1,154
4,460
1,154
1,154
1,106
(396) $ (10,644) $
(158) $ (4,258) $
(3,644) $
(1,458) $
1,356
542
$
$
14,916
5,966
$
$
34,386
13,754
$
$
38,846
15,538
$
$
38,846
15,538
$
$
38,894
15,558
(237) $
(6,386) $
(2,186) $
814
8,950
20,632
23,308
23,308
23,337
$
$
(237) $
15,396 $
(6,386) $
25,644 $
(2,186) $
18,644 $
814
13,644
$
$
8,950
10,084
$
$
20,632
5,614
$
$
23,308
1,154
$
$
23,308
1,154
$
$
23,337
1,106
$
$
$
8,000
30,000
10,000
(5,000)
(45,000)
(100,000)
$
$
$
($150,000)
$15,158
PW(15%) =
($38,794)
$19,258
$16,458
$14,458
IRR =
$19,034
$26,246
$24,462
$24,462
(1,050)
437
(3,504)
$68,326
9.60%
Note: A true sense of capital gains is only realized for the sale of land.
(c) Project is not acceptable.
Page | 40
10
Income Statement
Revenues (savings)
Expenses:
O&M
Depreciation
Taxable Income
Income Taxes(40%)
Net Income
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
($19,300)
Salvage
Gains Tax
Working capital
($2,500)
Net Cash Flow
($21,800)
$500
$5,012
$5,012
$5,012
$5,012
$5,012
$5,012
$5,012
$5,012
$5,012
$2,500
$8,012
Page | 41
10
Income Statement
Revenues (savings)
Expenses:
O&M
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
Depreciation
Taxable Income
Income Taxes(40%)
$2,400
$2,758
$4,342
$1,737
$2,400
$4,727
$2,373
$949
$2,400
$3,376
$3,724
$1,490
$2,400
$2,411
$4,689
$1,876
$2,400
$1,723
$5,377
$2,151
$2,400
$1,722
$5,378
$2,151
$2,400
$1,723
$5,377
$2,151
$2,400
$861
$6,239
$2,496
$2,400
$0
$7,100
$2,840
$2,400
$0
$7,100
$2,840
Net Income
$2,605
$1,424
$2,235
$2,814
$3,226
$3,227
$3,226
$3,744
$4,260
$4,260
$2,605
$2,758
$1,424
$4,727
$2,235
$3,376
$2,814
$2,411
$3,226
$1,723
$3,227
$1,722
$3,226
$1,723
$3,744
$861
$4,260
$0
$4,260
$0
$4,260
$500
($200)
$2,500
$7,060
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Working capital
Net Cash Flow
($19,300)
($2,500)
($21,800)
$5,363
$6,151
$5,610
$5,224
$4,949
$4,949
$4,949
$4,604
Page | 42
ST 10.4
Given:
Savings = $314,000 + $35,000 = $349,000 per year
Materials (resin) = $350(400) = $140,000 per year
Cost base = $187,000 + $10,000 + $15,000 = $212,000
Taxable gain = $30,000
Output
PW(i)=
IRR(%)=
40
20
1
$181,889
50.80%
4
Income Statement
Revenues (savings)
Expenses:
O&M costs
Resin
Software development
Depreciation
$349,000
$349,000
$349,000
$349,000
$349,000
$349,000
$36,000
$140,000
$20,000
42,400
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
67,840
40,704
24,422
24,422
12,211
Taxable Income
Income Taxes (40%)
$110,600
44,240
$105,160
42,064
$132,296
52,918
$148,578
59,431
$148,578
59,431
$160,789
64,316
$66,360
$63,096
$79,378
$89,147
$89,147
$96,473
66,360
42,400
63,096
67,840
79,378
40,704
89,147
24,422
89,147
24,422
96,473
12,211
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Net Cash Flow
(212,000)
30,000
(12,000)
($212,000)
$108,760
$130,936
$120,082
$113,569
$113,569
$126,684
Page | 43
(b) Debt financing (term loan): annual installment = $212,000(A/P, 13%, 6) = $53,032
Tax Rate(%)=
MARR(%)=
0
40
20
PW(i)=
IRR(%)=
$349,000
$349,000
$349,000
$36,000
$140,000
$20,000
42,400
27,560
$36,000
$140,000
Taxable Income
Income Taxes (40%)
Net Income
$244,004
#NUM!
4
$349,000
$349,000
$349,000
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
67,840
24,249
40,704
20,507
24,422
16,278
24,422
11,500
12,211
6,101
$83,040
33,216
$80,911
32,365
$111,789
44,716
$132,299
52,920
$137,077
54,831
$154,688
61,875
$49,824
$48,547
$67,074
$79,380
$82,246
$92,813
49,824
42,400
48,547
67,840
67,074
40,704
79,380
24,422
82,246
24,422
92,813
12,211
Income Statement
Revenues (savings)
Expenses:
O&M costs
Resin
Software development
Depreciation
Debt Interest
(212,000)
30,000
(12,000)
212,000
$0
(25,472)
(28,784)
(32,526)
(36,754)
(41,532)
(46,931)
$66,752
$87,603
$75,252
$67,048
$65,137
$76,092
Page | 44
40
20
PW(i)=
IRR(%)=
$185,396
156.94%
$349,000
$349,000
$349,000
$349,000
$349,000
$349,000
$36,000
$140,000
$20,000
$62,560
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
$62,560
$62,560
$62,560
$62,560
Income Statement
Revenues (savings)
Expenses:
O&M costs
Resin
Software development
Lease Payment
$62,560
$0
Taxable Income
Income Taxes
($62,560)
($25,024)
$90,440
36,176
$110,440
44,176
$110,440
44,176
$110,440
44,176
$110,440
44,176
$173,000
69,200
Net Income
($37,536)
$54,264
$66,264
$66,264
$66,264
$66,264
$103,800
(37,536)
54,264
66,264
66,264
66,264
66,264
103,800
($37,536)
$54,264
$66,264
$66,264
$66,264
$66,264
$103,800
Page | 45
ST 10.5
(a) The net cash flows for each alternative over 10 years:
Installing AGVS:
Input Data
Tax Rate(%)=
MARR(%)=
Output
PW(9%)= ($167,864)
35
15
Financial Data
year
Depreciation
Book value
Interest payment
Principal payment
O&M costs
Cash Flow Statement
Investment
Net proceeds from sale
-(1 - 0.35) (Expenses)
-(1 - 0.35) (Debt interest)
+ (0.35) (Depreciation)
Borrowed funds
Principal repayment
Net Cash Flow
0
$159,000
159,000
$20,000
1
$22,721
136,279
15,900
(26,044)
$20,000
2
$38,939
97,340
13,296
(28,648)
$20,000
3
$27,809
69,531
10,431
(31,513)
$20,000
4
$19,859
49,672
7,280
(34,664)
$20,000
5
$14,199
35,473
3,813
(38,131)
$20,000
6
$14,183
21,290
7
$14,199
7,091
8
$7,091
(0)
$20,000
$20,000
$20,000
10
$0
(0)
$0
(0)
$20,000
$0
10
($45,445) ($48,640)
(34,664)
$0
0
(38,131)
($8,036)
$0
Page | 46
(b) & (c) The incremental cash flows (AGVS option Gas truck option)
Page | 47