year 0 1 2

price of new machine -780,000

salvage value
capital gain on salvage value
dep 128000 128000
tax shield on dep -48640 -48640
saving in operating costs -125,000 -125,000
loss of tax on operating costs 47,500 47,500
cash flow -780,000 1,860 1,860

old machine
year
SALE PROCEEDS 230,000
CG TAX -11400
SAVINGS ON MAINTANENCE COSTS 125,000 125,000
LOSS OF TAX SHIELD ON MAINTANNCE -47500 -47500
DEPRECIATION 130,000 130,000
LOSS OF TAX SHIELD ON DEPRECIATION -49400 -49400
LOSS OF SALVAGE VALUE
SAVINGS ON CAPITAL GAIN TAX
NET CASH FLOW 218,600 158,100 158,100

combined cash flows -561,400 159,960 159,960

npv for both cash flow combined $3,856.06

npv is positive so replace the machine now

 3 4 5 tax 38%
discount rate 14%
140,000
-53,200
128000 128000 128000
-48640 -48640 -48640
-125,000 -125,000 -125,000
47,500 47,500 47,500
1,860 1,860 88,660

book value of old machine

125,000 125,000 125,000

-47500 -47500 -47500
130,000 130,000 130,000
-49400 -49400 -49400
-90,000
34200
158,100 158,100 102,300

159,960 159,960 190,960

260,000
year 0 1 2
buying cost -5,000,000
salvage value
capital gain on salvage value
dep 3,000,000 1,800,000
dep tax sield -1050000 -630000
cash flows -5,000,000 1,950,000 1,170,000
npv ($1,245,986.08)

so warf computers should go for buying rather than leasing.

 3 4 dep rate 40% tax 35% k
1 2 3 4
600,000 dep 2000000 1200000 720000 432000
-210,000
1,080,000 648,000 dep amount 3,000,000 1,800,000 1,080,000 648,000
-378000 -226800
702,000 811,200
11%
year 0 1 2 3 4 dep rate
security deposit -300,000 300,000
tax on deposit back 105,000
lease rent -1,300,000 -1,300,000 -1,300,000 -1,300,000
interest on tax shield -455000 -455000 -455000 -455000 0

cash flows -1,145,000 -455,000 -455,000 -455,000 195,000

npv ($2,128,437.66)
40% tax 35% k 11%
PS 50 Million Before
Inc 0 Million Proportion 0%
VC 0.00 Discount 0%
K 12% pct
Tax Rate 30% ACP 45

Inc in Sales 0
Inc in Discount 0.7
Net Impact -0.7
Old Investment 6.164384
New Investment 3.835616
Gain in Investment 2.328767
Return on Gain 0.279452

yes the new credit terms sould be offered

Now
70%
2%
2/10net30
28 Days