Business finance homework

CapitalBudgetingTemplate_0.xlsx

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Gamma Inc.
Assumptions:
Tax Rate	40%
Old machine purchased for	1,000,000
Old Machine - Book Value	290,000
Initial Investment
Installed cost of new asset
Cost of the new machine	1,800,000
Installation costs	250,000
Total cost of new machine		2,050,000	Outflow
After-tax proceeds from sale of old asset
Proceeds from sale of existing machine	125,000
Tax on sale of existing machine	(66,000)
Total after-tax proceeds from sale		191,000	Inflow
Increase in net working capital		30,000	Outflow
Initial investment		1,889,000
Terminal CF
After-tax proceeds from sale of new asset
Proceeds from sale of new asset	150,000			BV of "new" machine at end of project
Tax on sale of new asset
Total after tax proceeds—sale of new asset
Change in net working capital
Terminal cash flow
							The equipment was sold at the end of Year 5, so Y6 is not relevant. Thje online homework, however, wants some information based on Year 6…
		MACRS Yr 1	MACRS Yr 2	MACRS Yr 3	MACRS Yr 4	MACRS Yr 5	MACRS Yr 6
CF for New Machine		20%	32%	19%	12%	12%	5%
YEAR	0	1	2	3	4	5	6
EBIT Improvement
Depreciation
Net Profit before Tax
Tax (@40%)
Net Profit After Tax
Operating Cash Flow
		MACR Yr 4	MACR Yr 5	MACR Yr 6	MACR Yr 7
CF for Old Machine		12%	12%	5%
YEAR	0	1	2	3	4	5	6
EBIT Improvement (none for business-as-usual)		- 0	- 0	- 0	- 0	- 0	- 0
Depreciation							- 0
Net Profit before Tax							- 0
Tax (@40%)							- 0
Net Profit After Tax							- 0
Operating Cash Flow							- 0
Incremental CF
YEAR	0	1	2	3	4	5	6
New Machine CF
Old Machine CF
Incremental CF (Difference)
Project Cash Flows (to be discounted)
15%	Hurdle Rate
YEAR	0	1	2	3	4	5	6
Initial Investment
Incremental CF							The equipment was sold at the end of Year 5, so Y6 Depreciation is not relevant
Terminal Value
Total CF
PV
NPV (Sum of PVs, less Initial Investment)
NPV (using formula)
IRR
PBP

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