Depreciation rates Year 1 Year 2 Year 3 33.33% 44.45% 14.81% Year 4 7.41% Complete the following table and calculate incremental cash flows in each year. Hint: Round your answers to the nearest dollar and remember to enter a minus sign if the calculated value is negative. Year 0 Year 1 Year 2 Year 3 Year 4 New machine cost $1,700 After-tax salvage value, old machine $700 Sales revenues $4,500 Operating costs except depreciation $380 $4,500 $380 $4,500 $380 $4,500 $380 Operating income $ $3,364 $3,868 $3,994 After-tax operating income $ $2,018 $2,321 $2,396 Net cash flows after replacement (adding back depreciation) Incremental Cash Flows $2,774 $2,321 $2,522 $394 $193 $142 Next evaluate the incremental cash flows by calculating the net present value (NPV), the internal rate of return (IRR), and the modified IRR (MIRR). Assume again that the cost of financing the new project is the same as the WACC and equals 10%. Hint: Use a spreadsheet program's functions or use a financial calculator for this task.

Depreciation rates Year 1 Year 2 Year 3 33.33% 44.45% 14.81% Year 4 7.41% Complete the following table and calculate incremental cash flows in each year. Hint: Round your answers to the nearest dollar and remember to enter a minus sign if the calculated value is negative. Year 0 Year 1 Year 2 Year 3 Year 4 New machine cost $1,700 After-tax salvage value, old machine $700 Sales revenues $4,500 Operating costs except depreciation $380 $4,500 $380 $4,500 $380 $4,500 $380 Operating income $ $3,364 $3,868 $3,994 After-tax operating income $ $2,018 $2,321 $2,396 Net cash flows after replacement (adding back depreciation) Incremental Cash Flows $2,774 $2,321 $2,522 $394 $193 $142 Next evaluate the incremental cash flows by calculating the net present value (NPV), the internal rate of return (IRR), and the modified IRR (MIRR). Assume again that the cost of financing the new project is the same as the WACC and equals 10%. Hint: Use a spreadsheet program's functions or use a financial calculator for this task.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 7E

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