Question

Use the following information to calculate Depreciable Base

Year	Units Sold
1	65,000
2	93,000
3	120,000
4	110,000
5	83,000
6	50,000

• Price per Unit: $260.00
• Variable Cost: $125.00
• Fixed Costs: $255,000.00
• Taxes: 36%
• Cost of Equipment: $33,200,000.00
• Shipping and Installation Costs: $1,000,000.00
• Working Capital: $150,000.00
• Salvage Value: $80,000.00
• Life of Equipment: 6 years.
• Sales Price: $30,000.00
• Required Return Rate (for NPV and IRR Calculation): 17%

Answer 1

	0	1	2	3	4	5	6
Unit Sales		65,000	93,000	120,000	110,000	83,000	50,000
Investment	-34,200,000
NWC	-150,000						150,000
Salvage							80,000
Sales		16,900,000	24,180,000	31,200,000	28,600,000	21,580,000	13,000,000
VC		-8,125,000	-11,625,000	-15,000,000	-13,750,000	-10,375,000	-6,250,000
FC		-255,000	-255,000	-255,000	-255,000	-255,000	-255,000
Depreciation		-5,700,000	-5,700,000	-5,700,000	-5,700,000	-5,700,000	-5,700,000
EBT		2,820,000	6,600,000	10,245,000	8,895,000	5,250,000	795,000
Tax (36%)		-1,015,200	-2,376,000	-3,688,200	-3,202,200	-1,890,000	-286,200
Net Income		1,804,800	4,224,000	6,556,800	5,692,800	3,360,000	508,800
Cash Flows	-34,350,000	7,504,800	9,924,000	12,256,800	11,392,800	9,060,000	6,410,000
IRR	16.64%
NPV	($322,239)