In: Finance
NOK Plastics is considering the acquisition of a new plastic injection-molding machine to make a line of plastic fittings. The cost of the machine and dies is $125,000. Shipping and installation is another $8,000. NOK estimates that new project will require $7,500 in inventory, and result in a $7,500 increase in accounts receivable and $5,000 increase in accounts payable. The latter three will be recovered at the end of the life of the equipment.
Sales of the new plastic fittings are expected to be $350,000 annually. Cost of goods sold are expected to be 50% of sales. Additional operating expenses are projected to be $115,000 per year over the machine’s expected 5-year useful life. The machine will depreciated using a 5-year MACRS class life. The equipment will be sold at the end of its useful life (5 years) for $35,000.
The tax rate is 25% and the relevant discount rate is 15%.
This question has been asked, but I don't know the formulas that he used. Could someone please help me with how to set this up in excel?
Excel formulas:
Book value of asset is calculated by deducting depreciation from cost of asset. And then gain is calculated. After that Multiply the gain with (1- Tax Rate). This will give you after tax cash flow from the asset.