a.

Yes
b Yes
c No
d Yes
e No
f Yes
g Yes

The EAC approach is appropriate when comparing mutually exclusive projects with different lives that w
replaced when they wear out. This type of analysis is necessary so that the projects have a common life
span over which they can be compared. For example, if one project has a three-year life and the other h
five-year life, then a 15-year horizon is the minimum necessary to place the two projects on an equal fo
implying that one project will be repeated five times and the other will be repeated three times. Note the
shortest common life may be quite long when there are more than two alternatives and/or the individual
project lives are relatively long. Assuming this type of analysis is valid implies that the project cash flow
remain the same over the common life, thus ignoring the possible effects of, among other things: (1)
inflation, (2) changing economic conditions, (3) the increasing unreliability of cash flow estimates that oc
far into the future, and (4) the possible effects of future technology improvement that could alter the pro
cash flows.
 YES

YES
NO

th different lives that will be

cts have a common life
ear life and the other has a
rojects on an equal footing,
d three times. Note the
s and/or the individual
t the project cash flows
ng other things: (1)
h flow estimates that occur
hat could alter the project
Purchase $ (9,000)
Price $ 4.75
Cost $ 2.30
Depreciation $ 1,800
Tax 34%
Discount rate 14%

1 2 3
Units 1,500 1,500 1,500
Sales $ 7,125 $ 7,125 $ 7,125
Cost $ 3,450 $ 3,450 $ 3,450
EBITDA $ 3,675 $ 3,675 $ 3,675
OCFs $ 3,037.50 $ 3,037.50 $ 3,037.50
NPV $ 1,427.98

0 1 2
Investment $ (24,000)
Sales revenue $ 12,500 $ 13,000
Operating costs $ 2,700 $ 2,800
Depreciation $ 6,000 $ 6,000
Net working
capital spending $ 300 $ 350 $ 400
EBT $ - $ 3,800 $ 4,200
Tax $ - $ 1,292 $ 1,428
Net income $ - $ 2,508 $ 2,772
OCFs $ (24,000) $ 8,508 $ 8,772
Total OCFs $ (23,700) $ 8,858 $ 9,172
NPV $2,140.83

Purchase $ (670,000)
Depreciate $ 134,000
EBITDA $ 240,000
Working capital $ 85,000
Taxes 35%
Terminal CFs $ 32,500

0 1 2
OCFs $ (670,000) $ 134,000 $ 134,000
Saving 240,000 240,000
After tax saving 156,000 156,000

Change NWC
Total CFs $ (670,000) $ 202,900 $ 202,900
IRR 13.96%

The Techron I
Cost machine $ 215,000 Tax
Depreciation $ 71,667 Discount rate
Pretax opreating
costs $ (35,000)
0 1 2 3
Cost 71,667 71,667 71,667
Oportunity cost (35,000) (35,000) (35,000)
salvaged 13,000
OCFs $ (215,000) $ 2,333 $ 2,333 $ 15,333
NPV ($200,142.58)
PVIA $2.40
EAC ($83,329.16)

The Techron II
Cost machine $ 270,000
Depreciation $ 54,000
Pretax opreating
costs $ (44,000)

0 1 2 3
Cost $ 54,000 $ 54,000 $ 54,000
Op.cost $ (44,000) $ (44,000) $ (44,000)
Salvage
OCFs $ (270,000) $ (9,700) $ (9,700) $ (9,700)
NPV ($297,589.78)
PVIFA $3.60
EAC ($82,554.30)

Choose the Techron II

Year Project A Project B

0 $ (50,000) $ (65,000)
1 $ 30,000 $ 29,000
2 $ 25,000 $ 38,000
3 $ 20,000 $ 41,000
Nominal discount
rate 13%
Inflation rate 4%
Real discount rate 8.65%
NPV $14,378.65 $18,838.35

Choose project B

Investment
New machine $ (18,000,000) Tax
Book value of Required rate
current machine $ 6,000,000 return

Market value (bán ra) $ 4,500,000 Depreciation(new)

Net WC $ 250,000 Depreciation (Old)

Terminal CFs $ 250,000 Change in dep
0 1 2
EBITDA 6,700,000 6,700,000

OCFs (13,165,000) 5,257,000 5,257,000

NPV 3,669,736
IRR 22.23%

op cost khi bán máy = (market value-bookvalue)*thuê

đóng thuế phải trừ
Investment
Machine screws
per year 140,000 cartons
Cost (CF from 0) $ (1,800,000) Rev= 140kx bid price (A)
Depreciation $ 360,000
Terminal CFs
Salvaged $ 150,000
Tax 35%
After-tax Salv $ 97,500
Fixed cost $ 265,000
Variable cost $ 8.5 per carton
Net working
capital $ (130,000)

0 1 2
Pro cost
Terminal Cfs
OCFs $ (1,930,000) $ 727,244.48 $ 727,244.48
NPV $ 566,689.17
 4 5
1,500 1,500
$ 7,125 $ 7,125
$ 3,450 $ 3,450
$ 3,675 $ 3,675
$ 3,037.50 $ 3,037.50

3 4

$ 13,500 $ 10,500
 $ 2,900 $ 2,100
$ 6,000 $ 6,000

$ 300 $ (1,350)
$ 4,600 $ 2,400
$ 1,564 $ 816
$ 3,036 $ 1,584
$ 9,036 $ 7,584
$ 9,336 $ 6,234

3 4 5
$ 134,000 $ 134,000 $ 134,000
240,000 240,000 240,000
156,000 156,000 156,000
32,500
-85,000
$ 202,900 $ 202,900 $ 150,400
6%

35%
12%
 4 5
$ 54,000 $ 54,000
$ (44,000) $ (44,000)
$ 13,000
$ (9,700) $ 3,300
 39%

10%

$ 4,500,000

$ 1,500,000
$ 3,000,000
3 4
6,700,000 6,700,000
250,000
5,257,000 5,507,000
kx bid price (A)

3 4 5

$ 227,500
$ 727,244.48 $ 727,244.48 $ 727,244.48
Machine cost 575000
Depreciation 115000
Price 60
Variable cost 14
Fixed cost 165000
Tax 34%
Discount rate 8%
Financial break even point is the no.of units sold that are sufficient to cover the project's financing costs
This point occur when the project net present value (NPV =0) bc this level of sales the return generated by the project = cost o

0 1 2 3 4 5
-575000
P 60 60 60 60 60
Variable cost 14 14 14 14 14
Fixed cost 165000 165000 165000 165000 165000

NPV=0
nerated by the project = cost of capital
Going directly to market

If successful, the present value of the payoff (when the $ 34,000,000

product is brought to market is:

$ 12,000,000
If the DVDR fail, the present value of the payoff

There is a 50% chance of success

Probability of faiure 50%
NPV $ 23,000,000

Test marketing before going to market

Cost of testing marketing 1,300,000

Test marketing would allow the firm to improve the prove the product and increase the probability of success to
Probability of failure 20%
Year 1 value $ 29,600,000
NPV $ 25,366,666.67

Ang Electronics should do test marketing before going to market as this option has higher NPV

Go to market now Focus group Consulting firm

Expected payoff $ 950,000 $ 1,235,000 $ 1,520,000
Cost $ 175,000 $ 390,000
Net present value $ 950,000 $ 1,060,000 $ 1,130,000

Consulting firm option should be selected, as it has highest NPV

Sale units $ 9,000
Net cash flow $ 35
periods $ 10
Annual OCF $ 315,000
Initial investment $ (1,350,000)
PVIFA(16%,10) 4.833
a) NPV $ 172,395
Sales $ (950,000)
CF from sale of
equipment (5,616.15) units
Value of the option
probability of success to 80%