Free Cash flows: After tax opertaing income +Depreciation

Investment 600,000.00
Income /year 200,000.00

1 Cash flows w/o taxes (600,000.00) 200,000.00

IRR 31.11%

2 Income - Depr. 140,000.00

After tax income 77,000.00
After tax opertaing income +Depreciation 137,000.00
Cash flows (600,000.00) 137,000.00

IRR 18.73%

3 Since the return Is higher than the expected return of 12%, he shud go ahead with the investment..

4 Income 200,000.00
Depreciation 200,000.00
Income - Depr. -
After tax income -
Free cash flows (600,000) 200,000.00

IRR 20.49%

5 Income - Depr. 140,000.00

After tax income 77,000.00
After tax opertaing income +Depreciation 137,000.00
Cash flows (900,000.00) 200,000.00

IRR 11.96%

6 Old Equip 600,000.00

Income 200,000.00
Depreciation on new 333,333.33
Depreciation on old 200,000.00
Net Depreciation 133,333.33
Income - Depr. 66,666.67
After tax income 36,666.67
Free cash flows from income - 170,000.00
Investment (1,000,000.00)
Addiotional income from sales of equip 200,000.00
Net Cash flow (800,000.00) 170,000.00
 IRR 10.10%

7 Old Equip 600,000.00

Income 200,000.00
Depreciation 200,000.00
Income - Depr. -
After tax income -
Free cash flows from income - 200,000.00
Investment (600,000.00) (1,000,000.00)
Addiotional income from sales of equip
Net Cash flow (600,000.00) (800,000.00)

IRR 11.85%

8 Old Equip 600,000.00

Income 200,000.00
Depreciation 200,000.00
Income - Depr. -
After tax income -
Free cash flows from income - 200,000.00
Investment (600,000.00)
Addiotional income from sales of equip
Net Cash flow (600,000.00) 200,000.00

IRR 14.06%

9 Periods: - 1
Inflation adjusted Cash flow (600,000.00) 192,307.69

IRR 9.67%
tax opertaing income +Depreciation

200,000.00 200,000.00 200,000.00 200,000.00 200,000.00 200,000.00

NPV $742,016.28

137,000.00 137,000.00 137,000.00 137,000.00 137,000.00 137,000.00

NPV $174,080.55 Payback: 85,000.00 0.62

d with the investment..

200,000.00 200,000.00 200,000.00 200,000.00 200,000.00 200,000.00

80,000.00 40,000.00 40,000.00 40,000.00 40,000.00 40,000.00
120,000.00 160,000.00 160,000.00 160,000.00 160,000.00 160,000.00
66,000.00 88,000.00 88,000.00 88,000.00 88,000.00 88,000.00
146,000.00 128,000.00 128,000.00 128,000.00 128,000.00 128,000.00

NPV $201,863.75

146,000.00 128,000.00 128,000.00 128,000.00 128,000.00 128,000.00

NPV ($1,544.28)

New Equip 1,000,000.00 New income 400,000.00

200,000.00 200,000.00 200,000.00 200,000.00 200,000.00 200,000.00

133,333.33 66,666.67 66,666.67 66,666.67 66,666.67 66,666.67
80,000.00 40,000.00 40,000.00 40,000.00 40,000.00 40,000.00
53,333.33 26,666.67 26,666.67 26,666.67 26,666.67 26,666.67
146,666.67 173,333.33 173,333.33 173,333.33 173,333.33 173,333.33
80,666.67 95,333.33 95,333.33 95,333.33 95,333.33 95,333.33
134,000.00 122,000.00 122,000.00 122,000.00 122,000.00 122,000.00

134,000.00 122,000.00 122,000.00 122,000.00 122,000.00 122,000.00

NPV ($58,249.32)

New Equip 1,000,000.00 New income 400,000.00

400,000.00 400,000.00 400,000.00 400,000.00 400,000.00 400,000.00

333,333.33 133,333.33 66,666.67 66,666.67 66,666.67 66,666.67
66,666.67 266,666.67 333,333.33 333,333.33 333,333.33 333,333.33
36,666.67 146,666.67 183,333.33 183,333.33 183,333.33 183,333.33
370,000.00 280,000.00 250,000.00 250,000.00 250,000.00 250,000.00

370,000.00 280,000.00 250,000.00 250,000.00 250,000.00 250,000.00

NPV ($7,927.57)

New Equip 1,000,000.00 New income 400,000.00

400,000.00 400,000.00 400,000.00 400,000.00 400,000.00 400,000.00

120,000.00 333,333.33 133,333.33 66,666.67 66,666.67 66,666.67
66,666.67 266,666.67 333,333.33 333,333.33 333,333.33 333,333.33
36,666.67 146,666.67 183,333.33 183,333.33 183,333.33 183,333.33
370,000.00 280,000.00 250,000.00 250,000.00 250,000.00 250,000.00
(1,000,000.00)

(630,000.00) 280,000.00 250,000.00 250,000.00 250,000.00 250,000.00

The IRR is higher than the answer 7, even though the total cah flow is same for total of 10 years, so the company is better off

2 3 4 5 6 7
(582,470.41) 248,918.98 213,701.05 205,481.78 197,578.63 189,979.45

NPV ($86,338.59)
 200,000.00 200,000.00 200,000.00

137,000.00 137,000.00 137,000.00

4.62 years

200,000.00 200,000.00 200,000.00

40,000.00 40,000.00 40,000.00
160,000.00 160,000.00 160,000.00
88,000.00 88,000.00 88,000.00
128,000.00 128,000.00 128,000.00

128,000.00 128,000.00 428,000.00

200,000.00 200,000.00 200,000.00 This is incremental savings

66,666.67 66,666.67 66,666.67
40,000.00 40,000.00 40,000.00
26,666.67 26,666.67 26,666.67
173,333.33 173,333.33 173,333.33
95,333.33 95,333.33 95,333.33
122,000.00 122,000.00 122,000.00

122,000.00 122,000.00 122,000.00

 400,000.00 400,000.00 400,000.00
66,666.67 66,666.67 66,666.67
333,333.33 333,333.33 333,333.33
183,333.33 183,333.33 183,333.33
250,000.00 250,000.00 250,000.00

250,000.00 250,000.00 250,000.00 1,000,000.00

400,000.00 400,000.00 400,000.00

66,666.67 66,666.67 66,666.67 58,333.33
333,333.33 333,333.33 341,666.67
183,333.33 183,333.33 187,916.67
250,000.00 250,000.00 246,250.00

250,000.00 250,000.00 246,250.00 996,250.00

10 years, so the company is better off this way

8 9 10
182,672.55 175,646.68 166,357.68
1
(448,000.00) 152,000.00 152,000.00 152,000.00 152,000.00 152,000.00

31.78%

2 92,000.00
50,600.00
110,600.00
(489,400.00) 110,600.00 110,600.00 110,600.00 110,600.00 110,600.00

18.44%

3
152,000.00 152,000.00 152,000.00 152,000.00 152,000.00

110,600.00 110,600.00 110,600.00 110,600.00 110,600.00

1,000,000