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Date Posted: 00:33:16 08/16/00 Wed
Author: L.Muralidaran
Subject: Re: SOLUTIONS TO FENDLER CAPITAL BUDGETING PROBLEMS
In reply to: Richard J. Fendler 's message, "SOLUTIONS TO FENDLER CAPITAL BUDGETING PROBLEMS" on 10:56:51 05/03/00 Wed

> 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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