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Date Posted: 10:56:51 05/03/00 Wed
Author: Richard J. Fendler
Subject: SOLUTIONS TO FENDLER CAPITAL BUDGETING PROBLEMS

2. Step 1
Buy machine (60,000)
Reduce NWC 15,000
(45,000)

Step 2
Year MACRS Dep NCF=(5000)(.6)+(.4)(Dep)
1 0.20 12,000 7,800
2 0.32 19,200 10,680
3 0.19 11,400 7,560
4 0.12 7,200 5,880
5 0.11 6,600 5,640
6 0.06 3,600

Step 3
Sell machine 10,000
Tax consequence (2,560)
Replace NWC (15,000)
(7,560)

Step 4
Year NCF
- (45,000)
1 7,800
2 10,680
3 7,560
4 5,880
5 (1,920)

NPV (21,493)


3. Step 1
Buy machine (40,000)
NWC -
(40,000)

Step 2
Year MACRS Dep NCF=(6000--5000)(.6)+(.4)(Dep)
1 0.20 8,000 9,800
2 0.32 12,800 11,720
3 0.19 7,600 9,640
4 0.12 4,800 8,520
5 0.11 4,400 8,360
6 0.06 2,400

Step 3
Sell machine 10,000
Tax consequence (3,040)
NWC -
6,960

Step 4
Year NCF
- (40,000)
1 9,800
2 11,720
3 9,640
4 8,520
5 15,320

NPV 2,291.90




4. Step 1
Buy new machine (14,000)
Sell old machine 1,500
Tax consequence 600
NWC -
(11,900)

Step 2
Year MACRS New Dep Old Dep NCF=(7000)(.6)+(.4)(New Dep - Old Dep)
1 0.33 4,620 1,000 5,648
2 0.45 6,300 1,000 6,320
3 0.15 2,100 1,000 4,640
4 0.07 980

Step 3
Sell machine 2,000
Tax consequence (408)
Opp cost old machine -
NWC -
1,592

Step 4
Year NCF
0 (11,900)
1 5,648
2 6,320
3 6,232

NPV 1,658.33



5. Step 1
Buy new machine (30,000)
Sell old machine 14,000
Tax consequence (1,600)
NWC -
(17,600)

Step 2
Year MACRS New Dep Old Dep NCF=(3000)(.6)+(.4)(New Dep - Old Dep)
1 0.20 6,000 2,000 3,400
2 0.32 9,600 2,000 4,840
3 0.19 5,700 2,000 3,280
4 0.12 3,600 2,000 2,440
5 0.11 3,300 2,000 2,320
6 0.06 1,800

Step 3
Sell machine 1,000
Tax consequence 320
Opp cost old machine -
NWC -
1,320

Step 4
Year NCF
0 (17,600)
1 3,400
2 4,840
3 3,280
4 2,440
5 3,640

IRR 0%


6. Step 1
Buy new machine (200,000)
Sell old machine 60,000
Tax consequence (8,500)
NWC -
(148,500)

Step 2
Year MACRS New Dep Old Dep NCF=(18000-2500)(.66)+(.34)(New Dep - Old Dep)
1 0.20 40,000 7,000 21,450
2 0.32 64,000 7,000 29,610
3 0.19 38,000 7,000 20,770
4 0.12 24,000 7,000 16,010
5 0.11 22,000 7,000 15,330
6 0.06 12,000

Step 3
Sell machine 12,000
Tax consequence -
Opp cost old machine -
NWC -
12,000

Step 4
Year NCF
0 (148,500)
1 21,450
2 29,610
3 20,770
4 16,010
5 27,330

NPV (61,019.29)



7. Step 1
Buy new machine (20,000)
Sell old machine 5,000
Tax consequence 4,000
NWC -
(11,000)

Step 2
Year MACRS New Dep Old Dep NCF=(4000)(.6)+(.4)(New Dep - Old Dep)
1 0.20 4,000 3,000 2,800
2 0.32 6,400 3,000 3,760
3 0.19 3,800 3,000 2,720
4 0.12 2,400 3,000 2,160
5 0.11 2,200 3,000 2,080
6 0.06 1,200 - 2,880

Step 3
Sell machine -
Tax consequence -
Opp cost old machine -
NWC -
-

Step 4
Year NCF
0 (11,000)
1 2,800
2 3,760
3 2,720
4 2,160
5 2,080
6 2,880

NPV 1,088.98

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