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Data Section Data Section

Cash Outflows/Change in Depreciation Cash Outflows/Change in Depreciation

Cash Inflows Cash Inflows

T-Account of Cash Flows/MIRR T-Account of Cash Flows/MIRR

Interpolation for IRR Calculations Interpolation for IRR Calculations

Payback Period Payback Period

Summary Summary

Data Section for 2nd Proposal Data Section for 2nd Proposal
2nd Proposal

2nd Proposal
Cash Outflows (2nd)/Chg. In Depreciation (2nd) Cash Outflows/Change in Depreciation (2nd)

Cash Inflows Cash Inflows (2nd)

T-Account of Cash Flows/MIRR T-Account of Cash Flows/MIRR (2nd)

Replacement Chains Replacement Chains

NPV Profile Chart NPV Profile Chart

Cash Flow Chart Cash Flow Chart


epreciation (2nd)
SUMMARY SECTION

Net Present Value


P.V. of Benefits - P.V. of Costs = Net Present Value
$34,093 - 30,625 = $3,468

The benefits exceed the costs. You should BUY the asset.
Internal Rate of Return

Internal Rate of Return = 20.58%

The IRR of 20.58% is greater than the discount rate (or required rate of return) of 12.0%.
You should BUY the asset.
Modified Internal Rate of Return

Modified Internal Rate of Return = 16.81%

The MIRR of 16.81% is greater than the discount rate (or required rate of return) of 12.0%.
You should BUY the asset.
Payback Period

Payback Period = 2.51 years

You should buy the asset only if the firm's minimum desired
payback period is 2.51 years or greater.
(2nd Proposal)
CASH OUTFLOWS @ 12% CASH INFLOWS
Cash Flow x PVF = PVB
(0) Cost of New Asset $701,391 (1) $259,493 x 0.893 = $231,690
Shipping 4,000 (2) 240,057 x 0.797 = 191,372
Working Capital 6,500 (3) 144,941 x 0.712 = 103,166
Sale Proceeds (8,000) (4) 108,221 x 0.636 = 68,776
Tax on Sale of Old Asset (11,375) (5) 104,000 x 0.567 = 59,012
(6) 0 x 0.000 = 0
(7) 0 x 0.000 = 0
(8) 0 x 0.000 = 0
(9) 0 x 0.000 = 0
(10) 0 x 0.000 = 0
_________ _________
P.V. OF COSTS = $692,516 P.V. OF BENEFITS = $654,017
SUMMARY OF FINDINGS

Net Present Value = ($38,499) Profitability Index = 0.94


Internal Rate of Return = 9.26% Payback Period (yrs) = 3.44
Modified Internal Rate of Return = 10.73%

MODIFIED INTERNAL RATE OF RETURN


CASH OUTFLOWS @ 12% CASH INFLOWS
Cash Flow x FVF = Future Value
(0) Cost of New Asset $701,391 (1) 259,493 x 1.574 = $408,317
Shipping $4,000 (2) 240,057 x 1.405 = 337,262
Working Capital $6,500 (3) 144,941 x 1.254 = 181,814
Sale Proceeds ($8,000) (4) 108,221 x 1.120 = 121,207
Tax on Sale of Old Asset ($11,375) (5) 104,000 x 1.000 = 104,000
(6) 0 x 0.000 = 0
(7) 0 x 0.000 = 0
(8) 0 x 0.000 = 0
(9) 0 x 0.000 = 0
(10) 0 x 0.000 = 0
_________ _________
P.V. OF COSTS = $692,516 P.V. OF BENEFITS = $1,152,601
SCRATCHSHEET AREA
Year Equiv. CF Yrs. of Reinvestment
Modified Internal Rate of Return = 10.73% 0 ($692,516)
1 0 4
2 0 3
3 0 2
4 0 1
5 1,152,601 0
6 0 0
7 0 0
8 0 0
9 0 0
10 0 0
Proposal A

CASH OUTFLOWS @ 12% CASH INFLOWS

(0) Cost of New Asset $50,000 (1) 12,157 x 0.870 = $10,572


Shipping 0 (2) 12,530 x 0.756 = 9,474
Working Capital 0 (3) 11,542 x 0.658 = 7,589
Sale Proceeds (8,000) (4) 11,296 x 0.572 = 6,459
Tax on Sale of Old Asset (11,375) (5) 0 x 0.000 = 0
(6) 0 x 0.000 = 0
(7) 0 x 0.000 = 0
(8) 0 x 0.000 = 0
(9) 0 x 0.000 = 0
(10) 0 x 0.000 = 0
(4) 3,468 x 0.636 = 2,204
(8) 3,468 x 0.404 = 1,401
(12) 3,468 x 0.257 = 890
(16) 3,468 x 0.163 = 566
P.V. OF COSTS = $30,625 P.V. OF BENEFITS = $39,154

Net Present Value = $8,529


Proposal A should be accepted

Proposal B

CASH OUTFLOWS @ 12% CASH INFLOWS

(0) Cost of New Asset $701,391 (1) $259,493 x 0.893 = $231,690


Shipping 4,000 (2) 240,057 x 0.797 = 191,372
Working Capital 6,500 (3) 144,941 x 0.712 = 103,166
Sale Proceeds (8,000) (4) 108,221 x 0.636 = 68,776
Tax on Sale of Old Asset (11,375) (5) 104,000 x 0.567 = 59,012
(6) 0 x 0.000 = 0
(7) 0 x 0.000 = 0
(8) 0 x 0.000 = 0
(9) 0 x 0.000 = 0
(10) 0 x 0.000 = 0
(5) (38,499) x 0.567 = (21,845)
(10) (38,499) x 0.322 = (12,396)
(15) (38,499) x 0.183 = (7,034)
0 0 x 0.000 = 0
P.V. OF COSTS = $692,516 P.V. OF BENEFITS = $612,742

Net Present Value = ($79,773)


Net Present Value Profile
$4,000

$3,500

$3,000

$2,500
Net Present Value

$2,000

$1,500

$1,000

$500

$0
14.00% 16.00% 18.00% 20.00% 22.00% 24.00% 26.00% 28.00%
Discount Rate
Cash Flows of the Project

15,000 12,157 12,530


11,542 11,296

10,000

5,000
0 0 0 0 0 0
0

(5,000)

(10,000)

(15,000)

(20,000)

(25,000)
(30,625)
(30,000)

(35,000)
1 2 3 4 5 6 7 8 9 10 11
Year

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