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Initial Cost Installation Cost Increase in NWC Salvage Value Units sold Depreciation Rate Years Sales Variable Cost Fixed Cost EBITDA Depreciation EBIT Tax Expense Net Income Operating Cash Flow Capital Spending Cash Flow Net Working Capital Cash Flow Total Cash Flows Total Cumulative Cash Flows Internal Rate of Return Net Present Value $ $ $ ? 2,000,000 Price 250,000 Variable Cost 100,000 Fixed Cost $30,000.00 Year 0 $0.00 $2,250,000.00 $100,000.00 -$2,350,000.00 -$2,350,000.00 39% Year 1 21,000 ORIGINAL SCENARIO 20.0% 1 $2,520,000 $1,365,000 $500,000.00 $655,000 $450,000 $205,000 $82,000 $123,000 Year 1 $573,000.00 $0.00 $0.00 $573,000.00 -$1,777,000.00 $ $ 120.00 Tax Rate 65.00 Required Return $500,000.00 Year 2 2 55,000 32.0% $6,600,000 $3,575,000 $500,000.00 $2,525,000 $720,000 $1,805,000 $722,000 $1,083,000 Year 2 $1,803,000.00 $0.00 $0.00 $1,803,000.00 $26,000.00 Payback Period Profitability Index ? Year 3 3 44,000 19.0% $5,280,000 $2,860,000 $500,000.00 $1,920,000 $427,500 $1,492,500 $597,000 $895,500 Year 3 $1,323,000.00 $0.00 $0.00 40% 13.59% 2.99 Year 4 28,000 12.0% 4 $3,360,000 $1,820,000 Year 5 25,000 $0.00 $0.00 11.0% 5 $3,000,000 $1,625,000 $500,000.00 $500,000.00 $1,040,000 $270,000 $770,000 $308,000 $462,000 $875,000 $247,500 $627,500 $251,000 $376,500 Year 4 Year 5 $1,232,000.00 $1,004,000.00 $0.00 $0.00 $1,323,000.00 $1,232,000.00 $1,004,000.00 $1,349,000.00 $2,581,000.00 $3,585,000.00 WAAC Year 6 11,000 6.0% 6 $1,320,000 $715,000.00 $500,000.00 $105,000.00 $135,000.00 -$30,000.00 -$12,000.00 -$42,000.00 Year 6 -$12,000.00 $18,000.00 $100,000.00 $6,000.00 $3,591,000.00

Initial Cost Installation Cost Increase in NWC Salvage Value Units sold Depreciation Rate Years Sales Variable Cost Fixed Cost EBITDA Depreciation EBIT Tax Expense Net Income Operating Cash Flow Capital Spending Cash Flow Net Working Capital Cash Flow Total Cash Flows Total Cumulative Cash Flows Internal Rate of Return Net Present Value $ $ $ ? 2,000,000 Price 250,000 Variable Cost 100,000 Fixed Cost $30,000.00 Year 0 $0.00 $2,250,000.00 $100,000.00 -$2,350,000.00 -$2,350,000.00 39% Year 1 21,000 ORIGINAL SCENARIO 20.0% 1 $2,520,000 $1,365,000 $500,000.00 $655,000 $450,000 $205,000 $82,000 $123,000 Year 1 $573,000.00 $0.00 $0.00 $573,000.00 -$1,777,000.00 $ $ 120.00 Tax Rate 65.00 Required Return $500,000.00 Year 2 2 55,000 32.0% $6,600,000 $3,575,000 $500,000.00 $2,525,000 $720,000 $1,805,000 $722,000 $1,083,000 Year 2 $1,803,000.00 $0.00 $0.00 $1,803,000.00 $26,000.00 Payback Period Profitability Index ? Year 3 3 44,000 19.0% $5,280,000 $2,860,000 $500,000.00 $1,920,000 $427,500 $1,492,500 $597,000 $895,500 Year 3 $1,323,000.00 $0.00 $0.00 40% 13.59% 2.99 Year 4 28,000 12.0% 4 $3,360,000 $1,820,000 Year 5 25,000 $0.00 $0.00 11.0% 5 $3,000,000 $1,625,000 $500,000.00 $500,000.00 $1,040,000 $270,000 $770,000 $308,000 $462,000 $875,000 $247,500 $627,500 $251,000 $376,500 Year 4 Year 5 $1,232,000.00 $1,004,000.00 $0.00 $0.00 $1,323,000.00 $1,232,000.00 $1,004,000.00 $1,349,000.00 $2,581,000.00 $3,585,000.00 WAAC Year 6 11,000 6.0% 6 $1,320,000 $715,000.00 $500,000.00 $105,000.00 $135,000.00 -$30,000.00 -$12,000.00 -$42,000.00 Year 6 -$12,000.00 $18,000.00 $100,000.00 $6,000.00 $3,591,000.00

Corporate Fin Focused Approach
Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows
Section: Chapter Questions
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Initial Cost Installation Cost Increase in NWC Salvage Value Units sold Depreciation Rate Years Sales Variable Cost Fixed Cost EBITDA Depreciation EBIT Tax Expense Net Income Operating Cash Flow Capital Spending Cash Flow Net Working Capital Cash Flow Total Cash Flows Total Cumulative Cash Flows Internal Rate of Return Net Present Value $ $ $ ? 2,000,000 Price 250,000 Variable Cost 100,000 Fixed Cost $30,000.00 Year 0 $0.00 $2,250,000.00 $100,000.00 -$2,350,000.00 -$2,350,000.00 39% Year 1 21,000 ORIGINAL SCENARIO 20.0% 1 $2,520,000 $1,365,000 $500,000.00 $655,000 $450,000 $205,000 $82,000 $123,000 Year 1 $573,000.00 $0.00 $0.00 $573,000.00 -$1,777,000.00 $ $ 120.00 Tax Rate 65.00 Required Return $500,000.00 Year 2 55,000 32.0% 2 $6,600,000 $3,575,000 $500,000.00 $2,525,000 $720,000 $1,805,000 $722,000 $1,083,000 Year 2 $1,803,000.00 $0.00 $0.00 $1,803,000.00 $26,000.00 Payback Period Profitability Index ? Year 3 44,000 3 19.0% $5,280,000 $2,860,000 40% 13.59% $0.00 $0.00 Year 4 28,000 2.99 12.0% 5 $3,000,000 $1,625,000 $500,000.00 $500,000.00 $500,000.00 $1,920,000 $1,040,000 $875,000 $427,500 $247,500 $1,492,500 $627,500 $597,000 $251,000 $895,500 $376,500 4 $3,360,000 $1,820,000 Year 3 Year 4 $1,323,000.00 $1,232,000.00 $270,000 $770,000 $308,000 $462,000 Year 5 $0.00 $0.00 25,000 11.0% Year 5 $1,004,000.00 $0.00 $0.00 $1,323,000.00 $1,232,000.00 $1,004,000.00 $1,349,000.00 $2,581,000.00 $3,585,000.00 WAAC Year 6 11,000 6.0% 6 $1,320,000 $715,000.00 $500,000.00 $105,000.00 $135,000.00 -$30,000.00 -$12,000.00 -$42,000.00 Year 6 -$12,000.00 $18,000.00 $100,000.00 $6,000.00 $3,591,000.00
Transcribed Image Text:Initial Cost Installation Cost Increase in NWC Salvage Value Units sold Depreciation Rate Years Sales Variable Cost Fixed Cost EBITDA Depreciation EBIT Tax Expense Net Income Operating Cash Flow Capital Spending Cash Flow Net Working Capital Cash Flow Total Cash Flows Total Cumulative Cash Flows Internal Rate of Return Net Present Value $ $ $ ? 2,000,000 Price 250,000 Variable Cost 100,000 Fixed Cost $30,000.00 Year 0 $0.00 $2,250,000.00 $100,000.00 -$2,350,000.00 -$2,350,000.00 39% Year 1 21,000 ORIGINAL SCENARIO 20.0% 1 $2,520,000 $1,365,000 $500,000.00 $655,000 $450,000 $205,000 $82,000 $123,000 Year 1 $573,000.00 $0.00 $0.00 $573,000.00 -$1,777,000.00 $ $ 120.00 Tax Rate 65.00 Required Return $500,000.00 Year 2 55,000 32.0% 2 $6,600,000 $3,575,000 $500,000.00 $2,525,000 $720,000 $1,805,000 $722,000 $1,083,000 Year 2 $1,803,000.00 $0.00 $0.00 $1,803,000.00 $26,000.00 Payback Period Profitability Index ? Year 3 44,000 3 19.0% $5,280,000 $2,860,000 40% 13.59% $0.00 $0.00 Year 4 28,000 2.99 12.0% 5 $3,000,000 $1,625,000 $500,000.00 $500,000.00 $500,000.00 $1,920,000 $1,040,000 $875,000 $427,500 $247,500 $1,492,500 $627,500 $597,000 $251,000 $895,500 $376,500 4 $3,360,000 $1,820,000 Year 3 Year 4 $1,323,000.00 $1,232,000.00 $270,000 $770,000 $308,000 $462,000 Year 5 $0.00 $0.00 25,000 11.0% Year 5 $1,004,000.00 $0.00 $0.00 $1,323,000.00 $1,232,000.00 $1,004,000.00 $1,349,000.00 $2,581,000.00 $3,585,000.00 WAAC Year 6 11,000 6.0% 6 $1,320,000 $715,000.00 $500,000.00 $105,000.00 $135,000.00 -$30,000.00 -$12,000.00 -$42,000.00 Year 6 -$12,000.00 $18,000.00 $100,000.00 $6,000.00 $3,591,000.00
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