Академический Документы
Профессиональный Документы
Культура Документы
$3,034,510
$3,034,510
$3,034,510
$3,034,510
$3,034,510
330,000
306,713
0
380,000
320,513
0
430,000
320,513
0
480,000
320,513
0
530,000
306,713
0
Taxable Income
Income Taxes
$2,397,797
$839,229
$2,333,997
$816,899
$2,283,997
$799,399
$2,233,997
$781,899
$2,197,797
$769,229
Net Income
Cash Flow Statement
Cash from operation
Net Income
Depreciation
Investment / Salvage
Gains Tax
Loan repayment
$1,558,568
$1,517,098
$1,484,598
$1,452,098
$1,428,568
$1,865,281
PW (15%) =
IRR =
$3
15.00%
$1,837,611
$1,805,111
$1,772,611
$14,659,043
2
10.2 Investment in industrial robot:
0
Income Statement
Revenues (savings)
Expenses:
Depreciation
$120,000
$120,000
$120,000
$120,000
$120,000
$120,000
$37,000
$59,200
$35,520
$21,312
$21,312
$10,656
Taxable Income
Income Taxes(35%)
$83,000
$29,050
$60,800
$21,280
$84,480
$29,568
$98,688
$34,541
$98,688
$34,541
$109,344
$38,270
$120,000
$42,000
Net Income
$53,950
$39,520
$54,912
$64,147
$64,147
$71,074
$78,000
$53,950
$37,000
$39,520
$59,200
$54,912
$35,520
$64,147
$21,312
$64,147
$21,312
$71,074
$10,656
$78,000
$0
$120,000
($185,000)
$40,000
($14,000)
($185,000)
$90,950
$98,720
$90,432
$85,459
$85,459
$81,730
$104,000
$25,000
$25,000
$25,000
$25,000
$25,000
$25,000
$7,000
11000
$7,000
17600
$7,000
10560
$7,000
6336
$7,000
6336
$7,000
3168
Taxable Income
Income Taxes(40%)
$7,000
2,800
$400
160
$7,440
2,976
$11,664
4,666
$11,664
4,666
$14,832
5,933
Net Income
$4,200
$240
$4,464
$6,998
$6,998
$8,899
$4,200
$11,000
$240
$17,600
$4,464
$10,560
$6,998
$6,336
$6,998
$6,336
$8,899
$3,168
$15,200
$17,840
$15,024
$13,334
$13,334
$12,067
($55,000)
($55,000)
$1,056
3
10.4 Investment in an answering device:
Cost Salvage
Book
Gains
Gains
base
value
value
(losses)
taxes
$100,000 $115,000 $100,000 $115,000
$6,000
$500,000 $575,000 $436,965 $138,035 $55,214
$500,000 $50,000 $133,873 ($83,873) ($33,549)
Income Statement
Revenues (savings)
Expenses:
O&M costs
Depreciation :
Building
Equipment
Taxable Income
Income Taxes
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Land
Building
Machines
Gains Tax
Land
Building
Equipment
Net Cash Flow
$2,500,000
$2,500,000
$2,500,000
$2,500,000
$2,500,000
1,280,000
1,280,000
1,280,000
1,280,000
1,280,000
12,287
71,450
1,136,264
454,505
12,821
122,450
1,084,730
433,892
12,821
87,450
1,119,730
447,892
12,821
62,450
1,144,730
457,892
12,821
22,325
1,184,855
473,942
$681,758
$650,838
$671,838
$686,838
$710,913
$681,758
$83,737
$650,838
$135,271
$671,838
$100,271
$686,838
$75,271
$710,913
$35,146
($100,000)
($500,000)
($500,000)
115000
575000
50000
($6,000)
($55,214)
$33,549
($1,100,000)
$765,495
$786,108
$772,108
$762,108
$1,458,393
4
10.5 Investment in a new trench excavator:
0
Income Statement
Revenues (savings)
Expenses:
Required annual digging (ft)
Number of hours to operate
Operating cost (@$15/hr)
Depreciation
6,400
400
$6,000
$40,000
6,400
400
$6,000
$64,000
6,400
400
$6,000
$38,400
6,400
467
$7,005
$23,040
6,400
533
$7,995
$11,520
Taxable Income
Income Taxes (34%)
($46,000)
($15,640)
($70,000)
($23,800)
($44,400)
($15,096)
($30,045)
($10,215)
($19,515)
($6,635)
Net Income
($30,360)
($46,200)
($29,304)
($19,830)
($12,880)
($30,360)
$40,000
($46,200)
$64,000
($29,304)
$38,400
($19,830)
$23,040
($12,880)
$11,520
($200,000)
$40,000
$5,766
($200,000)
$9,640
$17,800
$9,096
$3,210
$44,407
10.6
Revenues (savings)
Expenses:
Software development
Operating expenses
Depreciation
$52,000
$52,000
$52,000
$52,000
$52,000
$20,000
$12,000
20,800
$12,000
33,280
$12,000
19,968
$12,000
11,981
$12,000
5,990
Taxable Income
Income Taxes (35%)
($800)
(280)
$6,720
2,352
$20,032
7,011
$28,019
9,807
$34,010
11,903
Net Income
($520)
$4,368
$13,021
$18,212
$22,106
(520)
20,800
4,368
33,280
13,021
19,968
18,212
11,981
22,106
5,990
(104,000)
($104,000)
0
4,194
$20,280
$37,648
$32,989
$30,193
$32,290
10.7
Input
Tax Rate(%)=
MARR(%)=
0
Income Statement
Revenues (savings)
Expenses:
Operating expenses
Depreciation
Output
PW(i)=
IRR(%)=
40
12
1
$9,465
31.17%
4
$20,160
$20,160
$20,160
$20,160
$20,160
$10,000
3,700
$10,000
5,920
$10,000
3,552
$10,000
2,131
$10,000
1,066
Taxable Income
Income Taxes(40%)
$6,460
2,584
$4,240
1,696
$6,608
2,643
$8,029
3,212
$9,094
3,638
Net Income
$3,876
$2,544
$3,965
$4,817
$5,457
3,876
3,700
2,544
5,920
3,965
3,552
4,817
2,131
5,457
1,066
(18,500)
1,850
112
($18,500)
$7,576
$8,464
$7,517
$6,948
$8,260
Income Statement
Revenues (savings)
Expenses:
Labor
Materials
Depreciation
Taxable Income
Income Taxes
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Net Cash Flow
Output
PW(i)=
IRR(%)=
40
12
2
$334,792
92%
$300,000
$300,000
$300,000
$300,000
$300,000
$300,000
$80,000
50,000
24,000
$80,000
50,000
38,400
$80,000
50,000
23,040
$80,000
50,000
13,824
$80,000
50,000
13,824
$80,000
50,000
6,912
$146,000
58,400
$131,600
52,640
$146,960
58,784
$156,176
62,470
$156,176
62,470
$163,088
65,235
$87,600
$78,960
$88,176
$93,706
$93,706
$97,853
87,600
24,000
78,960
38,400
88,176
23,040
93,706
13,824
93,706
13,824
97,853
6,912
(120,000)
0
0
($120,000)
$111,600
$117,360
$111,216
$107,530
$107,530
$104,765
10.9
0
Income Statement
Revenues (savings)
Expenses:
O&M costs
Depreciation
Taxable Income
Income Taxes (40%)
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Net Cash Flow
$
$
$
$250,000
$250,000
$250,000
$250,000
$250,000
$50,000
40,000
$160,000
64,000
$96,000
$50,000
64,000
$136,000
54,400
$81,600
$50,000
38,400
$161,600
64,640
$96,960
$50,000
23,040
$176,960
70,784
$106,176
$50,000
11,520
$188,480
75,392
$113,088
96,000 $
40,000 $
81,600 $
64,000 $
96,960 $
38,400 $
106,176 $
23,040 $
113,088
11,520
$
$
5,000
7,216
$136,824
(200,000)
($200,000)
$136,000
$145,600
$135,360
$129,216
Output
PW(i) =
IRR(%) =
35
10
$1,998
11.19%
5-8
Income Statement
Energy Savings
Expenses:
Depreciation
$10,000
$10,000
$10,000
$10,000
$10,000
$10,000
16,665
22,225
7,405
3,705
Taxable Income
Income Taxes
($6,665)
(2,333)
($12,225)
(4,279)
$2,595
908
$6,295
2,203
$10,000
3,500
$10,000
3,500
Net Income
($4,332)
($7,946)
$1,687
$4,092
$6,500
$6,500
$
$
$
(4,332) $
16,665 $
(7,946) $
22,225 $
1,687
7,405
$
$
4,092
3,705
$
$
6,500
-
$
$
6,500
-
(50,000)
0
(0)
($50,000)
$12,333
$14,279
$9,092
$7,797
$6,500
$6,500
Output
PW(i) =
IRR(% )=
40
12
($0)
12.00%
Income Statement
Revenues (savings)
Expenses:
O&M costs
Depreciation
$130,000
$130,000
$130,000
$130,000
$130,000
$20,000
116,920
$20,000
155,928
$20,000
51,953
$20,000
25,994
$20,000
0
Taxable Income
Income Taxes (40%)
($6,920)
(2,768)
($45,928)
(18,371)
$58,047
23,219
$84,006
33,602
$110,000
44,000
Net Income
($4,152)
($27,557)
$34,828
$50,404
$66,000
$
$
$
(4,152) $
116,920 $
(27,557) $
155,928 $
34,828
51,953
$
$
50,404
25,994
$
$
66,000
-
(350,794)
0
0
($350,794)
$112,768
$128,371
$86,781
$76,398
$66,000
10
$675,000
$675,000
$675,000
$675,000
$675,000
$675,000
$675,000
$675,000
$675,000
$675,000
$425,000
$425,000
$425,000
$425,000
$425,000
$425,000
$425,000
$425,000
$425,000
$425,000
$36,860
$71,450
$141,691
$56,676
$38,462
$122,450
$89,089
$35,635
$38,462
$87,450
$124,089
$49,635
$38,462
$62,450
$149,089
$59,635
$38,462
$44,650
$166,889
$66,755
$38,462
$44,600
$166,939
$66,775
$38,462
$44,650
$166,889
$66,755
$38,462
$22,300
$189,239
$75,695
$38,462
$36,860
$211,539
$84,615
$213,141
$85,256
$85,014
$53,453
$74,453
$89,453
$100,133
$100,163
$100,133
$113,543
$126,923
$127,884
$85,014
$108,310
$53,453
$160,912
$74,453
$125,912
$89,453
$100,912
$100,133
$83,112
$100,163
$83,062
$100,133
$83,112
$113,543
$60,762
$126,923
$38,462
$127,884
$36,860
($250,000)
($1,500,000)
($500,000)
$500,000
$700,000
$50,000
($150,000)
($87,500)
$182,179
($20,000)
$150,000
($2,400,000)
$193,324
$214,365
$200,365
$190,365
$183,245
$183,225
$183,245
$174,305
$165,385
$1,639,423
(a) PW (15%) with working capital = $1, 083,867 , do not accept the project.
(b) PW (15%) without working capital = $970, 945 , still do not accept the project.
10.13
Input
Tax Rate(%)=
MARR(%)=
0
Income Statement
Revenues (savings)
Expenses:
Operating cost
Depreciation
Output
PW(i)=
IRR(%)=
35
18
1
$52,163
42%
4
$55,800
$55,800
$55,800
$55,800
$55,800
$55,800
$8,120
13,100
$8,120
20,960
$8,120
12,576
$8,120
7,546
$8,120
7,546
$8,120
1,886
Taxable Income
Income Taxes (35%)
$34,580
$12,103
$26,720
$9,352
$35,104
$12,286
$40,134
$14,047
$40,134
$14,047
$45,794
$16,028
Net Income
$22,477
$17,368
$22,818
$26,087
$26,087
$29,766
$22,477
$13,100
$17,368
$20,960
$22,818
$12,576
$26,087
$7,546
$26,087
$7,546
$29,766
$1,886
($10,000)
($75,500)
($65,500)
$3,000
($390)
$10,000
$35,577
$38,328
$35,394
$33,633
$33,633
$44,262
Comments: The operating cost represents the annual expenses related to operate the scanning
equipment.
Calendar year
Base period
Income Statement
Revenues (savings)
Expenses:
R&D expenses
Production cost
Depreciation :
Building
Equipment
Taxable Income
Income Taxes
0
-3
($500)
($200)
($2,500)
($1,000)
Net Income
($300)
($300)
$500
($300)
1
-2
2
-1
3
0
4
1
5
2
6
3
7
4
8
5
11
8
12
9
13
10
$50,000
$55,000
$60,500
$66,550
$73,205
$80,526
$72,473
$65,226
$58,703
$52,833
$40,000
$44,000
$48,400
$53,240
$58,564
$64,420
$57,978
$52,181
$46,962
$42,266
$51
$735
$10,214
$4,086
$51
$525
$11,524
$4,610
$51
$375
$12,884
$5,154
$51
$268
$14,322
$5,729
$51
$268
$15,786
$6,314
$51
$268
$14,175
$5,670
$51
$134
$12,860
$5,144
$51
$49
($2,000)
($800)
$49
$429
$9,522
$3,809
$11,689
$4,676
$10,517
$4,207
($1,500)
($1,200)
$5,713
$6,128
$6,914
$7,730
$8,593
$9,472
$8,505
$7,716
$7,014
$6,310
($1,500)
($1,200)
$5,713
$478
$6,128
$786
$6,914
$576
$7,730
$426
$8,593
$319
$9,472
$319
$8,505
$319
$7,716
$185
$7,014
$51
$6,310
$49
$2,500
($1,500)
$2,000
($1,200)
($2,000)
($3,000)
$1,000
$300
($5,000)
($500)
($550)
($605)
($666)
($732)
$805
$725
$652
$587
$197
($120)
$5,283
($10,000)
$5,691
$6,364
$6,885
$7,491
$8,180
$10,596
$9,549
$8,553
$7,652
$13,019
43.28%
(c) PW(20%) =
$10,253
Effects of Borrowing
10.15
Income Statement
0
Income Statement
Revenue
Expenses:
O&M
Depreciation
Debt interest
Taxable Income
Income Taxes
Net Income
Cash Flow Statement
Cash from operation
Net Income
Depreciation
Investment / Salvage
Gains Tax
Loan repayment
Net Cash Flow
$
$
$3,034,510
$3,034,510
$3,034,510
$3,034,510
$3,034,510
330,000
306,713
1,250,000
380,000
320,513
1,045,253
430,000
320,513
820,032
480,000
320,513
572,288
530,000
306,713
299,770
$1,147,797
$401,729
$1,288,744
$451,060
$1,463,965
$512,388
$1,661,709
$581,598
$1,898,027
$664,309
$746,068
$837,684
$951,577
$1,080,111
$1,233,718
746,068 $
306,713 $
($994,688)
PW (15%) =
IRR =
$2,458,837
41.91%
837,684 $
320,513 $
($1,094,019)
($1,205,347)
($1,324,557)
$11,466,494
10.16
0
Income Statement
Revenues (savings)
Expenses:
Depreciation
Deit interest
Taxable Income
Income Taxes(35%)
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Financing Activities:
Borrowed funds
Principal repayment
Net Cash Flow
$120,000
$120,000
$120,000
$120,000
$120,000
$120,000
$120,000
$37,000
$18,500
$64,500
$22,575
$59,200
$14,800
$46,000
$16,100
$35,520
$11,100
$73,380
$25,683
$21,312
$7,400
$91,288
$31,951
$21,312
$3,700
$94,988
$33,246
$10,656
$109,344
$38,270
$120,000
$42,000
$41,925
$29,900
$47,697
$59,337
$61,742
$71,074
$78,000
$41,925
$37,000
$29,900
$59,200
$47,697
$35,520
$59,337
$21,312
$61,742
$21,312
$71,074
$10,656
$78,000
$0
($185,000)
$40,000
($14,000)
$185,000
$0
($37,000)
($37,000)
($37,000)
($37,000)
($37,000)
$41,925
$52,100
$46,217
$43,649
$46,054
$81,730
$104,000
Note: This situation calls for a constant rate of reduction on principal payment.
10.17
Annual payment = $100, 000( A / P,11%,5) = $27, 060
New after tax cash flow
0
Income Statement
Revenues (savings)
Expenses:
O&M costs
Depreciation
Debt interest
Taxable Income
Income Taxes (40%)
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Financing Activities:
Borrowed funds
Principal repayment
Net Cash Flow
$
$
$
$250,000
$250,000
$250,000
$250,000
$250,000
$50,000
40,000
11,000
$149,000
59,600
$89,400
$50,000
64,000
9,233
$126,767
50,707
$76,060
$50,000
38,400
7,272
$154,328
61,731
$92,597
$50,000
23,040
5,096
$171,864
68,746
$103,118
$50,000
11,520
2,680
$185,800
74,320
$111,480
89,400 $
40,000 $
76,060 $
64,000 $
92,597 $
38,400 $
103,118 $
23,040 $
111,480
11,520
$
$
5,000
7,216
(21,964) $
104,194 $
(24,380)
110,836
(200,000)
100,000
10.18
Cash flow statement
Operating activities:
Net income
Depreciation
Investment activities:
Investment
Salvage
Gains Tax (40%)
Financial activities:
Borrowed funds
Principal repayment
Net cash flow
1
$10,400
$6,666
2
$12,019
$4,445
($20,000)
$8,000
$356
$10,000
($10,000)
($4,762)
$12,304
($5,238)
$19,581
NPW(15%) = $15,505.48
Note: Annual installments for the loan = $10,000( A / P,10%, 2) = $5, 762
Contemporary Engineering Economics, Fourth Edition, By Chan S. Park. ISBN 0-13-187628-7.
2007 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This material is protected by Copyright and written permission should be
obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by means, electronic, mechanical,
photocopying, recording, or likewise. For information regarding permission(s), write to: Rights and Permissions Department,
Pearson Education, Inc., Upper Saddle River, NJ 07458.
40
18
Output
PW(i) =
IRR(%) =
$80,000
$ 55,000
$80,000
$ 55,000
$80,000
$ 55,000
$
$
$
$
28,580
13,500
92,920
37,168
$55,752
$ 48,980
$ 9,000
$ 77,020
$ 30,808
$46,212
$ 55,752
$ 28,580
$ 46,212
$ 48,980
$241,601
91.54%
(a)
Income Statement
Revenues:
Additional revenue
Labor & materials savings
Expenses:
Depreciation
Debt interest
Taxable Income
Income Taxes
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Financing Activities:
Borrowed funds
Principal repayment
Net Cash Flow
5-7
10
$80,000
$ 55,000
$80,000
$ 55,000
$80,000
55,000
$80,000
$ 55,000
$80,000
$ 55,000
$ 34,980
$ 4,500
$ 95,520
$ 38,208
$57,312
24,980
$ 17,860
$ 110,020
$ 44,008
$66,012
$ 117,140
$ 46,856
$70,284
$ 126,080
$ 50,432
$75,648
$ 135,000
$ 54,000
$81,000
$ 135,000
$ 54,000
$81,000
$ 57,312
$ 34,980
$
$
$ 70,284
$ 17,860
$ 75,648
$ 8,920
$ 81,000
$
-
$ 81,000
$
-
66,012
24,980
8,920
(200,000)
$ 20,000
$ (8,000)
150,000
$ (50,000) $ (50,000) $ (50,000)
($50,000) $34,332
$45,192
$42,292
$90,992
$88,144
$84,568
$81,000
$93,000
Output
35
18
PW(i) =
IRR(%) =
2
($1,318,770)
Income Statement
Revenues (savings)
Expenses:
Depreciation
Debt interest
Taxable Income
Income Taxes (35%)
285,800
80,000
($365,800)
(128,030)
489,800
66,896
($556,696)
(194,844)
349,800
52,482
($402,282)
(140,799)
249,800
36,626
($286,426)
(100,249)
89,300
19,185
($108,485)
(37,970)
Net Income
($237,770)
($361,853)
($261,483)
($186,177)
($70,515)
$
$
$
(237,770) $
285,800 $
(361,853) $
489,800 $
(261,483) $
349,800 $
(186,177) $
249,800 $
(70,515)
89,300
$
$
200,000
117,425
(2,000,000)
800,000
$
(131,038) $
(144,142) $
(158,556) $
(174,412) $
(191,853)
($1,200,000) $
(83,008) $
(16,194) $
(70,239) $
(110,789) $
144,357
10.21
(a) After tax cash flow
Input
Tax Rate(%) =
MARR(%) =
0
Income Statement
Revenues (savings)
Expenses:
Depreciation
Debt interest
Taxable Income
Income Taxes (36%)
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Financing Activities:
Borrowed funds
Principal repayment
Net Cash Flow
Output
36
15
PW(i) =
IRR(%) =
$10,000
$10,000
$5,002
$4,200
$799
$287
$3,593
$10,000
$10,000
$10,000
$10,000
$8,572
$3,683
($2,254)
($811)
$6,122
$3,103
$775
$279
$4,372
$2,454
$3,175
$1,143
$3,126
$1,727
$5,148
$1,853
$1,563
$913
$7,524
$2,709
$511
($1,443)
$496
$2,032
$3,294
$4,816
$511
$5,002
($1,443)
$8,572
$496
$6,122
$2,032
$4,372
$3,294
$3,126
$4,816
$1,563
($35,000)
$3,000
$1,168
$35,000
$0
($4,312)
($4,829)
($5,409)
($6,058)
($6,785)
($7,599)
$1,201
$2,299
$1,209
$345
($365)
$2,948
(b) No meaningful IRR exists. We need to use the present worth analysis. Since
PW(15%) > 0, the project is acceptable.
Input
Tax Rate(%) =
MARR(%) =
0
Output
PW(i) =
IRR(%) =
40
14
1
$35,723
31.02%
4
Income Statement
Revenues (savings)
Expenses:
O&M cost
Depreciation
Debt interest
$40,000
$40,000
$40,000
$40,000
$40,000
$40,000
$40,000
$40,000
5,000
14,290
4,000
5,000
24,490
3,650
5,000
17,490
3,265
5,000
12,490
2,842
5,000
8,930
2,377
5,000
8,920
1,865
5,000
8,930
1,301
5,000
4,460
682
Taxable Income
Income Taxes (40%)
$16,710
6,684
$6,860
2,744
$14,245
5,698
$19,668
7,867
$23,693
9,477
$24,215
9,686
$24,769
9,907
$29,858
11,943
Net Income
$10,026
$4,116
$8,547
$11,801
$14,216
$14,529
$14,861
$17,915
40,000
$ (3,498) $ (3,848) $ (4,232) $ (4,656) $ (5,121) $ (5,633) $ (6,196) $ (6,816)
($60,000)
$20,818
$24,758
$21,804
$19,635
$18,025
$17,816
$17,595
$21,559
Output
PW(9%) =
35
9
$416
Financial Data
year
Depreciation
Book value
Salvage value
Gains tax
Loan payment schedule
Interest
Principal
Revenues
O & M costs
0
$
1
2
3
$ 2,000 $ 2,667 $ 889 $
6,000 $ 4,000 $ 1,333 $ 445 $
4
5
445
$
$ 2,000
$ (700)
Investment
Net proceeds from sale
Investment in working capital
Recovery of working capital
(1 - 0.35) (Revenue)
-(1 - 0.35) (Expenses)
-(1 - 0.35) (Debt interest)
+ (0.35) (Depreciation)
Borrowed funds
Principal repayment
Net Cash Flow
0
($6,000)
5
$1,300
$975
$975
$975
700 $ 933 $ 311 $
$975
156
$975
-
($6,000)
$1,675
$1,908
$1,286
$1,131
$2,275
0
$6,000
Output
PW(9%)= $10,104
35
9
1
$2,000
4,000
2
$2,667
1,333
3
$889
445
4
$445
0
5
$0
0
$2,000
-700
$
540 $
450 $
351 $
244 $
127
6,000 $ 1,003 $ 1,093 $ 1,191 $ 1,298 $ 1,415
$ 1,500 $ 1,500 $ 1,500 $ 1,500 $ 1,500
Investment
Net proceeds from sale
Investment in working capital
Recovery of working capital
(1 - 0.35) (Revenue)
-(1 - 0.35) (Expenses)
-(1 - 0.35) (Debt interest)
+ (0.35) (Depreciation)
Borrowed funds
Principal repayment
Net Cash Flow
0
($6,000)
5
$1,300
$975
-351
700
$975
-292
933
$975
-228
311
$975
-159
156
$975
-83
-
$6,000
$ 1,003 $ 1,093 $ 1,191 $ 1,298 $ 1,415
$0
$2,327
$2,709
$2,249
$2,270
$3,607
(c) The debt financing option is more attractive. Note that the debt financing option
results in a higher net present value ($10,104 versus $416) due to the fact that the interest
payments are tax deductible and the loan interest rate is the same as the MARR.
Output
PW(12%) = $75,393
40
12
Financial Data
year
Depreciation
Book value
Salvage value
Gains tax
Loan payment schedule
Interest
Principal
Revenues
O&M costs
0
$
125,000
125,000
1
2
$ 17,863 $ 30,613
$107,138 $ 76,525
3
4
5
$ 21,863 $ 15,613 $ 5,581
$ 54,663 $ 39,050 $ 33,469
$ 50,000
$ (6,613)
Investment
Net proceeds from sale
Investment in working capital
Recovery of working capital
(1 - 0.40) (Revenue)
-(1 - 0.40) (Expenses)
-(1 - 0.40) (Debt interest)
+ (0.40) (Depreciation)
Borrowed funds
Principal repayment
Net Cash Flow
5
$43,388
$36,000
$36,000
$36,000
$36,000
$36,000
$ (7,500) $ (6,272) $ (4,920) $ (3,434) $ (1,799)
$ 7,145 $ 12,245 $ 8,745 $ 6,245 $ 2,233
$
125,000
$ (20,475) $ (22,522) $ (24,774) $ (27,252) $ (29,977)
$0
$15,170
$19,451
$15,050
$11,559
$49,844
$ 21,700
$ (12,400)
$ (4,018)
$ 3,257
$ 21,700
$ (12,400)
$ (4,018)
$ 5,584
$ 21,700
$ (12,400)
$ (4,018)
$ 3,988
$ 21,700
$ (12,400)
$ (4,018)
$ 2,849
$ 21,700
$ (12,400)
$ (4,018)
$ 2,035
$ 21,700
$ (12,400)
$ (4,018)
$ 2,035
$ 21,700
$ (12,400)
$ (4,018)
$ 2,035
8,539
$ 10,866
10
(60,000)
(1 - 0.38)(Revenue)
-(1 - 0.38)(Expenses)
-(1 - 0.38) (Debt interest)
+(0.38)(Depreciation)
Borrowed funds
Principal repayment
54,000
(6,000) $
9,270
11
8,131
12
7,317
13
7,317
14
Investment
Net proceeds from sale
Investment in working capital
Recovery of working capital
(1 - 0.38)(Revenue)
-(1 - 0.38)(Expenses)
-(1 - 0.38) (Debt interest)
+(0.38)(Depreciation)
5,580
Borrowed funds
Principal repayment
Net cash flow
15
$
$
$
$
7,317
$ (54,000)
$
6,299
PW(18%) =
5,282
$ (48,718) $
9,300
9,300
9,300
9,300
$ 14,880
Input
Tax Rate(%) =
MARR(%) =
Option 1: Financing with retained earnings
0
Income Statement
Output
PW(i) = $161,321
IRR(%) =
42.46%
39
18
1
Revenues (savings)
Expenses:
O&M costs
Depreciation
Debt interest
$174,000
$174,000
$174,000
$174,000
$174,000
$174,000
$22,000
28,580
$22,000
48,980
$22,000
34,980
$22,000
24,980
$22,000
17,860
$22,000
8,930
Taxable Income
Income Taxes
$123,420
48,134
$103,020
40,178
$117,020
45,638
$127,020
49,538
$134,140
52,315
$143,070
55,797
$75,286
$62,842
$71,382
$77,482
$81,825
$87,273
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Working capital
Financing Activities:
Borrowed funds
Principal repayment
Net Cash Flow
(200,000)
$ 30,000
$ 2,219
$ 25,000
(25,000)
($225,000) $103,866
$111,822
$106,362
$102,462
$99,685
$153,422
Input
Tax Rate(%) =
MARR(%) =
Output
PW(i) =
IRR(%) =
39
18
$214,470
263.36%
Income Statement
Revenues (savings)
Expenses:
O&M costs
Depreciation
Debt interest
$174,000
$174,000
$174,000
$174,000
$174,000
$174,000
$22,000
28,580
24,000
$22,000
48,980
21,043
$22,000
34,980
17,730
$22,000
24,980
14,021
$22,000
17,860
9,866
$22,000
8,930
5,212
Taxable Income
Income Taxes
$99,420
38,774
$81,977
31,971
$99,290
38,723
$112,999
44,070
$124,274
48,467
$137,858
53,765
Net Income
$60,646
$50,006
$60,567
$68,929
$75,807
$84,093
$
$
$
60,646 $
28,580 $
50,006 $
48,980 $
60,567 $
34,980 $
68,929 $ 75,807 $
24,980 $ 17,860 $
84,093
8,930
$
$
$
30,000
2,219
25,000
(200,000)
(25,000)
200,000
$
($25,000)
(24,645) $
$64,581
$71,384
$64,632
$59,285
$54,887
$106,809
Option 3: Leasing
Input
Tax Rate(%) =
MARR(%) =
Output
PW(i) =
IRR(%) =
39
18
$170,092
101.06%
Income Statement
Revenues (savings)
Expenses:
O&M costs
Financial lease
$174,000
$174,000
$174,000
$174,000
$174,000
$174,000
$22,000
$55,000
$22,000
$55,000
$22,000
$55,000
$22,000
$55,000
$22,000
$55,000
$22,000
$55,000
Taxable Income
Income Taxes
($55,000)
($21,450)
$97,000
37,830
$97,000
37,830
$97,000
37,830
$97,000
37,830
$97,000
37,830
$152,000
59,280
Net Income
($33,550)
$59,170
$59,170
$59,170
$59,170
$59,170
$92,720
(33,550) $
(25,000)
($58,550)
59,170 $
$59,170
59,170 $
$59,170
59,170 $
$59,170
59,170 $
$59,170
59,170 $
92,720
25,000
$59,170
$117,720
Note: With the financial lease, the lessee must assume responsibility for paying
most of the operating costs of the equipment, including the maintenance expenses.
PW of after-tax O&M
P1 = $22, 000(1 0.39)( P / A,18%, 6)
= $46,938
n
1
2
3
4
5
6
Dn
$28,571
$48,980
$34,985
$24,990
$17,850
$8,925
In
$24,000
$21,043
$17,730
$14,021
$9,866
$5,212
10.27
Option 1: Lease
PW (12%)lease = $144, 000(1 0.40)( P / A,12%,30)
= $695,968
Option 2: Purchase
-
0
-$800,000
End of Period
1
2 - 29
30
$99,556
$150,000
($24,000) ($24,000) -$24,000
$6,389
$6,667
$6,389
-$800000 -$17,611 ($17,333) $231,945
Option 3: Remodel
- Note 1: Cost basis for property tax:
Land + building + remodeling cost = $660,000
- Note 2: Depreciation base: Remodeling cost = $300,000
- Note 3: Net proceeds from sale of building:
total depreciation amount = $230,128
book value = $300,000 - $230,128
= $69,872
taxable gain (loss) = $30,000 - $69,872
=$39,872
gains tax = (0.40)($39,872) = $15,949
= $45,949
Cash Flow
Elements
Investment
Net Proceeds:
Building
Land
-(0.60)(property tax)
+(0.40)Dn
Net Cash Flow
0
-$300,000
End of Period
1
2 - 29
30
$45,949
-$5,400 '-$5,100 - 300n ($14,100)
-$19,800
-$19,800
($19,800)
$2,949
$3,077
$2,949
-$300000 -$22,251
$14,698
10.28 Comparison by the annual equivalent cost (all units in thousand dollars):
Book Value (n = 20)
Salvage Value
Taxable gains
Gains tax (39%)
$380.61 $423.80
$470.56
$227.78
$826.82
Plant A
A2 = (1 0.39)($1,964) = $1,198.04
Unit cost:
$2,158,510
= $0.04317 / kWh
50, 000, 000kWh
Contemporary Engineering Economics, Fourth Edition, By Chan S. Park. ISBN 0-13-187628-7.
2007 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This material is protected by Copyright and written permission should be
obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by means, electronic, mechanical,
photocopying, recording, or likewise. For information regarding permission(s), write to: Rights and Permissions Department,
Pearson Education, Inc., Upper Saddle River, NJ 07458.
Plant B
Unit cost:
$2,133,330
= $0.04267 / kWh
50, 000, 000kWh
Plant C
Unit cost:
$3,183, 010
= $0.06366 / kWh
50, 000, 000kWh
Plant B is the most economical.
Dn
In
$7, 680
$2,304
$1, 411
10.30
(a) PW (incremental) cost of owing the equipment:
PW of after-tax O&M:
P1 = $50, 000(1 0.40)( P / A,15%, 4)
= $85, 649
Dn
In
1 $24,000 $12,000
$36,000(0.40) = $14,400
2 $38,400
$9,414
$47,817(0.40) = $19,126
3 $23,040
$6,570
$29,610(0.40) = $11,814
$3,441
$10,353(0.40) = $4,141
$6,912
PW of after-tax leasing:
P2 = $44, 000(1 0.40) + $44, 000(1 0.40)( P / A,15%,3)
= $86, 67
P = P1 + P2
= $155,196
(c) Should ICI buy or lease the equipment? The buying option is a better choice.
10.31
(a) PW of after-tax cash flow of leasing:
10.32
(a) Determine the annual cash flows for each option.
Buy option:
Cash flow elements
Investment
Net proceeds
3
$5,943
(0.65) I n
($1,151)
($740)
($275)
+0.35Dn
$1,132
$1,811
$543
($4,730)
($4,749)
($5,362)
($4,291)
($6,078)
$134
Loan repayment
Net cash flow
End of period
1
2
0
($16,170)
$16,170
$0
Lease option:
Cash flow elements
Security deposit
Refund
0
($500)
End of period
2
3
$500
(0.65) Ln
Net cash flow
($500)
($3,315)
($3,315)
($3,315)
($3,315)
($3,315)
($2,815)
10.33
(a) Boggs PW cost of leasing: after-tax annual lease expense = $15,000(1
0.40) = $9,000.
n
Dn
In
Combined Tax Savings
1 $20, 000 $12, 000 $32, 000(0.40) = $12,800
2 $32, 000 $8, 444 $40, 444(0.40) = $16,178
3
$9, 600
$4, 461
10.34
(a) Purchase with debt:
PW of after-tax revenue:
PW of after-tax expenses:
$4,530(0.30) = $1,359
$1,859(0.30) = $558
= $2,800( P / A,10%,5)
= $10, 614
(c) The financial lease is a better choice.
10.35 Setting the lease payment schedule: Let X denote the annual lease receipt
from the tractor lease. We will assume that these lease payments are received
at year end.
Cash Flow
Elements
Investment
Net Proceeds:
Security Deposit
+(0.65)(Rn )
+(0.35)Dn
Net Cash Flow
0
-$53,000
End of Period
1
0.65X
$5,936
0.65X
$5,936
$21,423*
-$1,500
0.65X
$1,781
0.65X
$21,704
$1,500
-$51,500
0.65X
$3,710
0.65X
$3,710
Note:
total depreciation amount = $32,648
book value = $53,000 - $32,648 = $20,352
taxable gain = $22,000 - $20,352 = $1,648
gains tax = (0.35)($1,648) = $577
net proceeds from sale = $22,000 - $577
= $21,423
5-7
10-11
12
$ 51,000
$ 51,000
$ 51,000
$ 51,000
$ 85,000
$ 136,000
$ 136,000
$ 136,000
$ 136,000
$ 36,000
$ 36,000
$ 36,000
$ 36,000
$ 60,000
$ 96,000
$ 96,000
$ 96,000
$ 96,000
$ 1,106
$ 14,290
$ 1,154
$ 24,490
$ 1,154
$ 17,490
$ 1,154
$ 12,490
$
$
$
$
Income Statement
Revenue
Expenses:
Production costs
Depreciation :
Building
Machines
Taxable Income
Income Taxes (40%)
$
$
1,356
542
Net Income
814
$
(237) $ (6,386) $ (2,186) $
814
$ 15,396 $ 25,644 $ 18,644 $ 13,644
1,154
8,930
1,154
4,460
1,154
1,154
1,106
$ 14,916
$ 5,966
$ 34,386
$ 13,754
$ 38,846
$ 15,538
$ 38,846
$ 15,538
$ 38,894
$ 15,558
8,950
$ 20,632
$ 23,308
$ 23,308
$ 23,337
$ 8,950
$ 10,084
$ 20,632
$ 5,614
$ 23,308
$ 1,154
$ 23,308
$ 1,154
$ 23,337
$ 1,106
(5,000)
(45,000)
(100,000)
$ 8,000
$ 30,000
$ 10,000
$ (1,050)
$
500
$ (4,004)
($150,000)
PW(15%) =
$15,158
$19,258
$16,458
$14,458
$19,034
IRR =
9.60%
($38,794)
$26,246
$24,462
$24,462
$67,888
Note: A true sense of capital gains is realized only for the sale of land.
10
Income Statement
Revenues (savings)
Expenses:
O&M
Depreciation
Taxable Income
Income Taxes (40%)
Net Income
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$2,400
$1,880
$5,220
$2,088
$3,132
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
$3,132
$1,880
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
($19,300)
Salvage
Gains Tax
Working capital
($2,500)
Net Cash Flow
($21,800)
$500
$5,012
$5,012
$5,012
$5,012
$5,012
$5,012
$5,012
$5,012
$5,012
$2,500
$8,012
10
Income Statement
Revenues (savings)
Expenses:
O&M
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
$9,500
Depreciation
Taxable Income
Income Taxes (40%)
$2,400
$2,758
$4,342
$1,737
$2,400
$4,727
$2,373
$949
$2,400
$3,376
$3,724
$1,490
$2,400
$2,411
$4,689
$1,876
$2,400
$1,723
$5,377
$2,151
$2,400
$1,722
$5,378
$2,151
$2,400
$1,723
$5,377
$2,151
$2,400
$861
$6,239
$2,496
$2,400
$0
$7,100
$2,840
$2,400
$0
$7,100
$2,840
Net Income
$2,605
$1,424
$2,235
$2,814
$3,226
$3,227
$3,226
$3,744
$4,260
$4,260
$2,605
$2,758
$1,424
$4,727
$2,235
$3,376
$2,814
$2,411
$3,226
$1,723
$3,227
$1,722
$3,226
$1,723
$3,744
$861
$4,260
$0
$4,260
$0
$4,260
$500
($200)
$2,500
$7,060
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Working capital
Net Cash Flow
($19,300)
($2,500)
($21,800)
$5,363
$6,151
$5,610
$5,224
$4,949
$4,949
$4,949
$4,604
ST 10.3 Note to Instructors: In order to make the problem more realistic, the savings due to reduction in development time is
changed from $114,000 to $314,000. This correction is already made for the 2nd printing.
Savings = $314,000 + $35,000 = $349,000 per year
Materials (resin) = $350(400) = $140,000 per year
Cost base = $187,000 + $10,000 + $15,000 = $212,000
Taxable gain = $30,000
(a) Equity financing (retained earnings):
Input
Tax Rate(%)=
MARR(%)=
0
40
20
Output
PW(i)=
IRR(%)=
$181,889
50.80%
Revenues (savings)
Expenses:
O&M costs
Resin
Software development
Depreciation
$349,000
$349,000
$349,000
$349,000
$349,000
$349,000
$36,000
$140,000
$20,000
42,400
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
67,840
40,704
24,422
24,422
12,211
Taxable Income
Income Taxes (40%)
$110,600
44,240
$105,160
42,064
$132,296
52,918
$148,578
59,431
$148,578
59,431
$160,789
64,316
$66,360
$63,096
$79,378
$89,147
$89,147
$96,473
66,360
42,400
63,096
67,840
79,378
40,704
89,147
24,422
89,147
24,422
96,473
12,211
Income Statement
Net Income
Cash Flow Statement
Operating Activities:
Net Income
Depreciation
Investment Activities:
Investment
Salvage
Gains Tax
Net Cash Flow
(212,000)
30,000
(12,000)
($212,000)
$108,760
$130,936
$120,082
$113,569
$113,569
$126,684
(b) Debt financing (term loan): annual installment = $212,000(A/P, 13%, 6) = $53,032
Tax Rate(%)=
MARR(%)=
0
40
20
PW(i)= $244,004
IRR(%)= #NUM!
$349,000
$349,000
$349,000
$349,000
$349,000 $349,000
$36,000
$140,000
$20,000
42,400
27,560
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
$36,000 $36,000
$140,000 $140,000
67,840
24,249
40,704
20,507
24,422
16,278
Taxable Income
Income Taxes (40%)
$83,040
33,216
$80,911
32,365
$111,789
44,716
$132,299
52,920
Net Income
$49,824
$48,547
$67,074
$79,380
$82,246
$92,813
49,824
42,400
48,547
67,840
67,074
40,704
79,380
24,422
82,246
24,422
92,813
12,211
Income Statement
Revenues (savings)
Expenses:
O&M costs
Resin
Software development
Depreciation
Debt Interest
24,422
11,500
12,211
6,101
$137,077 $154,688
54,831
61,875
(212,000)
30,000
(12,000)
212,000
$0
(25,472)
(28,784)
(32,526)
(36,754)
(41,532)
(46,931)
$66,752
$87,603
$75,252
$67,048
$65,137
$76,092
40
20
PW(i)= $185,396
IRR(%)= 156.94%
$349,000
$349,000
$349,000
$349,000
$349,000 $349,000
$36,000
$140,000
$36,000
$140,000
$36,000
$140,000
$36,000 $36,000
$140,000 $140,000
$62,560
$36,000
$140,000
$20,000
$62,560
$62,560
$62,560
$62,560
Taxable Income
Income Taxes
($62,560)
($25,024)
$90,440
36,176
$110,440
44,176
$110,440
44,176
$110,440
44,176
$110,440 $173,000
44,176
69,200
Net Income
($37,536)
$54,264
$66,264
$66,264
$66,264
$66,264 $103,800
(37,536)
54,264
66,264
66,264
66,264
($37,536)
$54,264
$66,264
$66,264
$66,264
Income Statement
Revenues (savings)
Expenses:
O&M costs
Resin
Software development
Lease Payment
$62,560
66,264
$0
103,800
$66,264 $103,800
ST 10.4
(a) The net cash flows for each alternative over 10 years:
Installing AGVS:
Input Data
Tax Rate(%)=
MARR(%)=
Output
PW(9%)= ($167,864)
35
15
Financial Data
year
Depreciation
Book value
Interest payment
Principal payment
O&M costs
Cash Flow Statement
Investment
Net proceeds from sale
-(1 - 0.35) (Expenses)
-(1 - 0.35) (Debt interest)
+ (0.35) (Depreciation)
Borrowed funds
Principal repayment
Net Cash Flow
0
$159,000
159,000
$20,000
1
2
3
$22,721 $38,939 $27,809
136,279
97,340
69,531
15,900
13,296
10,431
(26,044) (28,648) (31,513)
$20,000 $20,000 $20,000
4
5
6
$19,859 $14,199 $14,183
49,672
35,473
21,290
7,280
3,813
(34,664) (38,131)
$20,000 $20,000 $20,000
7
$14,199
7,091
8
$7,091
(0)
10
$0
(0)
$0
(0)
$20,000
$20,000
$20,000
$20,000
10
($13,000) ($13,000) ($13,000) ($13,000) ($13,000) ($13,000) ($13,000) ($13,000) ($13,000) ($13,000)
(10,335)
(8,642)
(6,780)
(4,732)
(2,478)
7,952
13,629
9,733
6,951
4,970
4,964
4,970
2,482
0
$159,000
(26,044) (28,648) (31,513) (34,664) (38,131)
$0
$0
($8,036)
PW (15%)gas = $267,810
PW (15%)agvs = $167,865
Select the AGVS option.