Question
In: Economics
Man-U-Facturing Inc. will buy a machine that has a cost of $850,000 and is expected to...
Man-U-Facturing Inc. will buy a machine that has a cost of $850,000 and is expected to be useful for 10 years. At the end of the 10th year, the firm intends to sell the machine for an estimated price of $52,036. In addition, the yearly benefits are expected to be $201,952 while the annual maintenance costs are predicted to be $51,300. The company uses a 9% interest rate for this project and it is currently being taxed at a flat tax rate of 21%. This time assume that Man-U-Facturing Inc. uses straight-line depreciation. What the is the after-tax net present value (NPV)?
Solutions
Expert Solution
Tax rate = 21%
Depreciation = (Purchase value - Salvage) /N = (850000 - 52036)/10 = 79796.40
Taxable income = Net cash flow - Depreciation
Tax = Tax rate * Taxable income
ATCF = Taxable income - Tax + Depreciation
| Yrs | BTCF | Depreciation | Taxable income | Tax | ATCF |
| 0 | -850000 | -850000 | |||
| 1 | 150652 | 79796.4 | 70856 | 14880 | 135772 |
| 2 | 150652 | 79796.4 | 70856 | 14880 | 135772 |
| 3 | 150652 | 79796.4 | 70856 | 14880 | 135772 |
| 4 | 150652 | 79796.4 | 70856 | 14880 | 135772 |
| 5 | 150652 | 79796.4 | 70856 | 14880 | 135772 |
| 6 | 150652 | 79796.4 | 70856 | 14880 | 135772 |
| 7 | 150652 | 79796.4 | 70856 | 14880 | 135772 |
| 8 | 150652 | 79796.4 | 70856 | 14880 | 135772 |
| 9 | 150652 | 79796.4 | 70856 | 14880 | 135772 |
| 10 | 150652 | 79796.4 | 70856 | 14880 | 187808 |
| 10 | 52036 | 0 | 0 | ||
| NPW | 43321 |
As NPW is positive, project should be selected
Showing formula in Excel
| Yrs | BTCF | Depreciation | Taxable income | Tax | ATCF |
| 0 | -850000 | =B13 | |||
| 1 | =201952-51300 | =(850000-52036)/10 | =B14-C14 | =D14*0.21 | =B14-E14 |
| 2 | =201952-51300 | =(850000-52036)/10 | =B15-C15 | =D15*0.21 | =B15-E15 |
| 3 | =201952-51300 | =(850000-52036)/10 | =B16-C16 | =D16*0.21 | =B16-E16 |
| 4 | =201952-51300 | =(850000-52036)/10 | =B17-C17 | =D17*0.21 | =B17-E17 |
| 5 | =201952-51300 | =(850000-52036)/10 | =B18-C18 | =D18*0.21 | =B18-E18 |
| 6 | =201952-51300 | =(850000-52036)/10 | =B19-C19 | =D19*0.21 | =B19-E19 |
| 7 | =201952-51300 | =(850000-52036)/10 | =B20-C20 | =D20*0.21 | =B20-E20 |
| 8 | =201952-51300 | =(850000-52036)/10 | =B21-C21 | =D21*0.21 | =B21-E21 |
| 9 | =201952-51300 | =(850000-52036)/10 | =B22-C22 | =D22*0.21 | =B22-E22 |
| 10 | =201952-51300 | =(850000-52036)/10 | =B23-C23 | =D23*0.21 | =B23-E23+B24 |
| 10 | 52036 | 0 | 0 | ||
| NPW | =NPV(9%,F14:F24)+F13 |
Rahul Sunny answered 1 year agoRelated Solutions
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Man-U-Facturing Inc. will buy a machine that has a cost of
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the 10th year, the firm intends to sell the machine for an
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the 10th year, the firm intends to sell the machine for an
estimated price of $52,036. In addition, the yearly benefits are
expected to be $201,952 while the annual maintenance costs are
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Man-U-Facturing Inc. will buy a machine that has a cost of $850,000 and is expected to...
Man-U-Facturing Inc. will buy a machine that has a cost of
$850,000 and is expected to be useful for 10 years. At the end of
the 10th year, the firm intends to sell the machine for an
estimated price of $52,036. In addition, the yearly benefits are
expected to be $201,952 while the annual maintenance costs are
predicted to be $51,300. The company uses a 9% interest rate for
this project and it is currently being taxed at a flat...
Man-U-Facturing Inc. will buy a machine that has a cost of $850,000 and is expected to...
Man-U-Facturing Inc. will buy a machine that has a cost of
$850,000 and is expected to be useful for 10 years. At the end of
the 10th year, the firm intends to sell the machine for an
estimated price of $52,036. In addition, the yearly benefits are
expected to be $201,952 while the annual maintenance costs are
predicted to be $51,300. The company uses a 9% interest rate for
this project and it is currently being taxed at a flat...
Man-U-Facturing Inc. will buy a machine that has a cost of $850,000 and is expected to...
Man-U-Facturing Inc. will buy a machine that has a cost of
$850,000 and is expected to be useful for 10 years. At the end of
the 10th year, the firm intends to sell the machine for an
estimated price of $52,036. In addition, the yearly benefits are
expected to be $201,952 while the annual maintenance costs are
predicted to be $51,300. The company uses a 9% interest rate for
this project and it is currently being taxed at a flat...
Man-U-Facturing Inc. will buy a machine that has a cost of $850,000 and is expected to...
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the 10th year, the firm intends to sell the machine for an
estimated price of $52,036. In addition, the yearly benefits are
expected to be $201,952 while the annual maintenance costs are
predicted to be $51,300. The company uses a 9% interest rate for
this project and it is currently being taxed at a flat...
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