D. Year Now 3 Purchase of equipment 4 Investment in working capital 5 Sales 6 Cost of goods sold 7 Out-of-pocket costs for salaries, advertising, etc. 8 Overhaul of equipment 9 Salvage value of the equipment $ (60,000) S (100,000) S 200,000 $ 200,000 $ 200,000 S 200,000 $ 200,000 $125,000) S(125,000) S(125,000) $(125,000) $(125,000) $ 135,000) S (35,000) S (35,000) S (35,000) S (35,000) $ (5,000) 10 Working capital reieased 11 Total cash flows (a) 12 Discount factor (14%) (b) 13 Present value of cash flows (a) x (b) S 10,000 $ 100,000 $ (160,000) S 40,000 S 40,000 $ 40,000 S 35,000 $ 150,000 1.000 0.877 0.769 0.675 0.592 $ 0.519 S (160,000) S 35,080 $ 30,760 $ 27,000 S 20,720 $ 7,850 31,410 14 Net present value (SUM B13:G13) 15 16 Note: The discount factors come from Exhibit 138-1 in Appendb 138.

D. Year Now 3 Purchase of equipment 4 Investment in working capital 5 Sales 6 Cost of goods sold 7 Out-of-pocket costs for salaries, advertising, etc. 8 Overhaul of equipment 9 Salvage value of the equipment $ (60,000) S (100,000) S 200,000 $ 200,000 $ 200,000 S 200,000 $ 200,000 $125,000) S(125,000) S(125,000) $(125,000) $(125,000) $ 135,000) S (35,000) S (35,000) S (35,000) S (35,000) $ (5,000) 10 Working capital reieased 11 Total cash flows (a) 12 Discount factor (14%) (b) 13 Present value of cash flows (a) x (b) S 10,000 $ 100,000 $ (160,000) S 40,000 S 40,000 $ 40,000 S 35,000 $ 150,000 1.000 0.877 0.769 0.675 0.592 $ 0.519 S (160,000) S 35,080 $ 30,760 $ 27,000 S 20,720 $ 7,850 31,410 14 Net present value (SUM B13:G13) 15 16 Note: The discount factors come from Exhibit 138-1 in Appendb 138.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter2: Financial Statements, Cash Flow, And Taxes

Section: Chapter Questions

Problem 14SP

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