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Liquid Chemical Case

Decent Essays

Chapter 04 - Fundamentals of Cost Analysis for Decision Making

4-61. (continued) Incremental Cash Flow – Alternative A Make Containers and Perform Maintenance
Year of Operation 2 3

0 Buy GHL Tax savings on purchase Cash flow on purchase Other materials Labor: Supervisor Labor: Workers Rent: Warehouse Maintenance Other expenses Manager's salary Total costs Tax savings Cash flow due to costs Tax effects of depreciation Tax effect of GHL costs Total cash flow Discount rate factor (10%) Present value NPV

1

4

$(500,000) (50,000) (450,000) (85,000) (36,000) (157,500) (80,000) $(1,358,500) 543,400 $(815,100) 60,000 80,000 $(675,100) 0.9091 $(613,727)

$(500,000) (50,000) (450,000) (85,000) (36,000) (157,500) (80,000) …show more content…

) 611,400 $(917,100) 60,000 72,000 $(785,100) 0.9091 $(713,727)

$(450,000) (50,000) (360,000) (85,000) (36,000) (92,500) (80,000) (375,000) $(1,528,500) 611,400 $(917,100) 60,000 72,000 $(785,100) 0.8264 $(648,843)

$(450,000) (50,000) (360,000) (85,000) (36,000) (92,500) (80,000) (375,000) $(1,528,500) 611,400 $(917,100) 60,000 72,000 $(785,100) 0.7513 $(589,857)

$(450,000) (50,000) (360,000) (85,000) (36,000) (92,500) (80,000) (375,000) $(1,528,500) 611,400 $(917,100) 60,000 72,000 $(785,100) 0.6830 $(536,234)

1.0000 $$(3,082,945)

4-53

Chapter 04 - Fundamentals of Cost Analysis for Decision Making

4-61 (continued) Incremental Cash Flow – Alternative C Buy Containers and Perform Maintenance
Sell machinery Tax savings on sale Cash flow on sale Sell GHL Tax savings on sale Cash flow on sale Other materials Labor: Supervisor Labor: Workers Rent: Warehouse Severance pay Other expenses Manager's salary Container contract Total costs Tax savings Cash flow due to costs Tax effects of depreciation Tax effect of GHL costs Total cash flow Discount rate factor (10%) Present value NPV 0 $200,000 160,000 $360,000 $560,000 56,000 $616,000 $(50,000) (50,000) (90,000) (85,000) (65,000) (1,250,000) $(1,590,000) 636,000 $(954,000) 8,000 $(946,000) 0.9091 $(860,000) $(50,000) (50,000) (90,000) (85,000) (65,000) (1,250,000) $(1,590,000) 636,000 $(954,000) 8,000 $(946,000) 0.8264 $(781,818) $(50,000) (50,000) (90,000) (85,000) (65,000) (1,250,000) $(1,590,000) 636,000

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