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Date Posted: 15:47:29 08/04/00 Fri
Author: Jenny Canova
Subject: Re: Practice Final Exam Fall 99 no. 23 and 25
In reply to: Jon Lewis 's message, "Practice Final Exam Fall 99 no. 23 and 25" on 11:58:25 08/04/00 Fri

> On #23, I am getting the following for the initial
> cash flow:
>
> Cost of new equipment -18000
> Salvage 1500
> Tax Savings 1200
> Increase in net working capital -2500
> TOTAL -17800
>
> close to 18,400 but not exact.
>
>
> On #25, I am getting
>
> Salvage New 4000
> Tax impact of new -2104
> Return of net working capital 2500
> TOTAL 4396
>
> Again, close to the right answer, 4804, but not exact.
>
> Any suggestions?
> Thanks.

#23: (18000)+(2500)+1500+600=(18400)
Note that 600=(3000bookvalue-1500salvage)*40%taxrate=tax savings b/c the machine is sold for a loss

#25: 2500 + 4000 - 1000 - [4000-1260]*40% + 1000*40%=4804

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