Question

Tampa Electric Company (TECO) is planning a major upgrade in its computerized demand management system. In order to accommodate this upgrade, a building will be constructed on land already owned by the company. The building is estimated to cost $1.8M and will be opened in August of this year. The computer equipment for the building will cost $2.75M, and all office equipment will cost $225,000. Annual expenses for operating this facility (labor, materials, insurance, energy, etc.) are expected to be $325,000 for the rest of this year. Use of the new demand management system is expected to decrease fuel and other costs for the company by $1.8m this year. If the company expects to earn 9% on its investments, is in the 35% tax bracket, and uses a 20-year planning horizon, determine the estimated after-tax cash flow from this project for this year.

please solve it in correct way

Answer 1

ANSWER :-

Intial investment
Building cost	1.8M
Computer Equipment	2.75M
Office equipment	225,000
	4,775,000

Dep Investment

No of Years

4,755,000 238,750

20

Operating cash flow
Reduce fuel and other cost	1,800,000
Less: Annual expenses	325,000
Less: Depreciation	238,750
Net income before tax	1,236,250
Less: Tax @ 35%	432,688
	803,563
Add Depreciation	238,750
Operating cash flow	1,042,313

Computer the plant net present value
Particulars	Now	1 to 20 year
Building cost	-$1,800,000
Computer Equipment	-$2,750,000
Office Equipment	-$225,000
Operating cash flow		$1,04,313
Salvage value plant
Total cash flow	-$4,775,000	$1,042,313
Discount factor @9%	1	9,1285
Present Value	-$4,775,000	$9,514,750
Net Present value	$4,739,750

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