Year

Sales (Revenues)
- Cost of Goods Sold (50% of Sales)
- Depreciation

- Taxes (35%)
+ Depreciation
+ changes to working capital

-90000

1
100,000
50,000
30,000
20,000
7000
13,000
30,000
-5,000

38,000

2
100,000
50,000
30,000
20,000
7000
13,000
30,000
-5,000

38,000

3
100,000
50,000
30,000
20,000
7000
13,000
30,000
10,000

53,000

20,000
13,000

38,000
$11,946.29

t
1

45,000
23,000

45,000
23,000

45,000
23,000

45,000
23,000

45,000
23,000

22,000

22,000

22,000

22,000

22,000

new machine dep

14,000

14,000

14,000

14,000

14,000

old machine dep

10,455

10,455

10,455

10,455

10,455

incremental depreciation

3,545

3,545

3,545

3,545

3,545

Incremental EBIT
tax
Incremental EAT

18,455
-7,013
11,442

18,455
-7,013
11,442

18,455
-7,013
11,442

18,455
-7,013
11,442

18,455
-7,013
11,442

Add back depr

NET OPERATING CFs

3,545
14,987

3,545
14,987

3,545
14,987

3,545
14,987

3,545
14,987

14,987

14,987

14,987

14,987

14,987

cost new machine

sale of existing machine
tax received
net initial investment

0
-140,000
50,000
-20,727
-110,727

operating cash flows

new machine rev
old machine rev

incremental increase in rev

-110,727
($22,464.49)

0
1
2
3
4
5
-110727 13501.89 12163.87 10958.44 9872.467 8894.114

10

45,000
23,000

45,000
23,000

45,000
23,000

45,000
23,000

45,000
23,000

22,000

22,000

22,000

22,000

22,000

14,000

14,000

14,000

14,000

14,000

10,455

10,455

10,455

10,455

10,455

3,545

3,545

3,545

3,545

3,545

18,455
-7,013
11,442

18,455
-7,013
11,442

18,455
-7,013
11,442

18,455
-7,013
11,442

18,455
-7,013
11,442

3,545
14,987

3,545
14,987

3,545
14,987

3,545
14,987

3,545
14,987

14,987

14,987

14,987

14,987

14,987

6
7
8012.716 7218.663

8
9
10
6503.3 5858.829 5278.224

Tax rate

30%

Old machine
original cost

500,000

Book Value

250,000

Depreciation /year

50,000

Sale value (today)

275,000

profit/loss on sale
Pay Tax

Initital Investment
Cost of New Unit + ship/instal
NWC
SALE OF EXISTING PLANT
Pay Tax
Net Initial Investment

25,000 Profit
7,500

0
-750,000
-40,000
275,000
-7,500
-522,500

Opertating Cash Flows

Incremental Increase in Rev (New -Old)
Incremental Costs (New -Old)
Incremental Depreciation (New -Old)
Incremental EBIT
Tax
Incremental EAT
Add back depreciation
nwc contributions (if needed)
Net Operating Cash Flows

100,000
20,000
-100,000
20,000
-6,000
14,000
100,000
-10,000
104,000

100,000
20,000
-100,000
20,000
-6,000
14,000
100,000
-10,000
104,000

104,000

104,000

Terminal Cash Flows

Proceeds from sale of plant
Tax
Recovery of NWC

NET CASH FLOWS

COC
NPV

-522,500
12%
-66,745

New machine
purchase price

700,000

Shipping & Installation

50,000

Total Cost

750,000

Useful life

Depreciation/year

150,000

Salvage Value

75,000

NWC

40,000

additional NWC

10,000

annual revenues

100,000 increase

operating costs

20,000 decrease

100,000
20,000
-100,000
20,000
-6,000
14,000
100,000
-10,000
104,000

100,000
20,000
-100,000
20,000
-6,000
14,000
100,000
-10,000
104,000

100,000
20,000
-100,000
20,000
-6,000
14,000
100,000
114,000

75,000
-22,500
80,000

104,000

104,000

246,500

Cost

120,000

Rental Income
Rates
Insurance
Maintenance

9,000
1,200
1,260
500

Depreciation
Prime Cost
Depreciation/year

0
80,000
3,200

tax rate

45%

Value of property
after 10 years

Purchase Price
Initial Investment
Opertating CFs
Rental Income
Rates
Insurance
Maintenance
Depreciation
Income (after exp and depr)
tax
Add back depreciation
Opertating Cash Flow

0
-120,000
-120,000

145,000

-1,353

9,000
-1,200
-1,260
-500
-3,200
2,840
-1,278
3,200
4,762

9,000
-1,200
-1,260
-500
-3,200
2,840
-1,278
3,200
4,762

9,000
-1,200
-1,260
-500
-3,200
2,840
-1,278
3,200
4,762

-121,353

4,762

4,762

4,762

-1,200
-1,260

-2,460
1,107

Terminal Cash Flow

Sale of Property
Less Book value
Capital Gain
tax paid
Terminal Cash Flow
Net Cash Flows
coc
NPV

10%
-45,556

per annum
pa in adv
pa in adv
pa
on prime cost of building

10

9,000
-1,200
-1,260
-500
-3,200
2,840
-1,278
3,200
4,762

9,000
-1,200
-1,260
-500
-3,200
2,840
-1,278
3,200
4,762

9,000
-1,200
-1,260
-500
-3,200
2,840
-1,278
3,200
4,762

9,000
-1,200
-1,260
-500
-3,200
2,840
-1,278
3,200
4,762

9,000
-1,200
-1,260
-500
-3,200
2,840
-1,278
3,200
4,762

9,000
-1,200
-1,260
-500
-3,200
2,840
-1,278
3,200
4,762

9,000

-500
-3,200
5,300
-2,385
3,200
6,115

145,000
88,000
57,000
25,650
119,350
4,762

4,762

4,762

4,762

4,762

4,762

125,465