The shipping costs, sales tax, installation cost for the RBT500will be $120,000. The equipment itself will cost $380,000. Theoperating and maintenance costs for the equipment is anticipated tobe $30,000 per year escalating at the rate of inflation of 3% peryear.
The companyâs tax rate is 30%. If the annual receipts are asshown in the table below and using a straight line depreciationwhat is the companyâs anticipated before and after tax profit peryear. Note, the salvage value of the equipment is expected to be$50,000 at the end of the 10thyear.
Before Tax Net Cash Flow?
After Tax Net Cash Flow?
After Tax Rate of Return?
Discuss these results and compare to the previous analysis:
What is different?
Which is better for the company to use, Straight Line or SOYDdepreciation?
What ramifications do depreciation and tax credits have on theIRR?
new equipment for its Maintenance Overhaul and Repair (MRO)station that will increase the throughput and allow them to meetanticipated demand for the next 10 years. This equipment is theRBT500 Robotics platform which has proven to be highly reliablewhen installed at the companyâs other divisions.
EOY
Investments
Annual Receips
Annual O&M
Annual Depreciation
Before Tax NCF
Taxes
After Tax NCF
0
($500,000)
$0
$0
$0
($500,000)
$0
($500,000)
1
$200,000
($30,000)
($45,000)
$125,000
($37,500)
$87,500
2
$250,000
($30,900)
($45,000)
$174,100
($52,230)
$121,870
3
$300,000
($31,827)
($45,000)
$223,173
($66,952)
$156,221
4
$300,000
($32,782)
($45,000)
$222,218
($66,665)
$155,553
5
$300,000
($33,765)
($45,000)
$221,235
($66,370)
$154,864
6
$350,000
($34,778)
($45,000)
$270,222
($81,067)
$189,155
7
$400,000
($35,822)
($45,000)
$319,178
($95,754)
$223,425
8
$350,000
($36,896)
($45,000)
$268,104
($80,431)
$187,673
9
$200,000
($38,003)
($45,000)
$116,997
($35,099)
$81,898
10
$50,000
$150,000
($39,143)
($45,000)
$115,857
($34,757)
$81,100
EOY
Annual Receipts
0
0
1
$200,000.00
2
$250,000.00
3
$300,000.00
4
$300,000.00
5
$300,000.00
6
$350,000.00
7
$400,000.00
8
$350,000.00
9
$200,000.00
10
$150,000.00
If the companyâs MARR is 15%
The shipping costs, sales tax, installation cost for the RBT500will be $120,000. The equipment itself will cost $380,000. Theoperating and maintenance costs for the equipment is anticipated tobe $30,000 per year escalating at the rate of inflation of 3% peryear.
The companyâs tax rate is 30%. If the annual receipts are asshown in the table below and using a straight line depreciationwhat is the companyâs anticipated before and after tax profit peryear. Note, the salvage value of the equipment is expected to be$50,000 at the end of the 10thyear.
Before Tax Net Cash Flow?
After Tax Net Cash Flow?
After Tax Rate of Return?
Discuss these results and compare to the previous analysis:
What is different?
Which is better for the company to use, Straight Line or SOYDdepreciation?
What ramifications do depreciation and tax credits have on theIRR?
new equipment for its Maintenance Overhaul and Repair (MRO)station that will increase the throughput and allow them to meetanticipated demand for the next 10 years. This equipment is theRBT500 Robotics platform which has proven to be highly reliablewhen installed at the companyâs other divisions.
EOY | Investments | Annual Receips | Annual O&M | Annual Depreciation | Before Tax NCF | Taxes | After Tax NCF |
0 | ($500,000) | $0 | $0 | $0 | ($500,000) | $0 | ($500,000) |
1 | $200,000 | ($30,000) | ($45,000) | $125,000 | ($37,500) | $87,500 | |
2 | $250,000 | ($30,900) | ($45,000) | $174,100 | ($52,230) | $121,870 | |
3 | $300,000 | ($31,827) | ($45,000) | $223,173 | ($66,952) | $156,221 | |
4 | $300,000 | ($32,782) | ($45,000) | $222,218 | ($66,665) | $155,553 | |
5 | $300,000 | ($33,765) | ($45,000) | $221,235 | ($66,370) | $154,864 | |
6 | $350,000 | ($34,778) | ($45,000) | $270,222 | ($81,067) | $189,155 | |
7 | $400,000 | ($35,822) | ($45,000) | $319,178 | ($95,754) | $223,425 | |
8 | $350,000 | ($36,896) | ($45,000) | $268,104 | ($80,431) | $187,673 | |
9 | $200,000 | ($38,003) | ($45,000) | $116,997 | ($35,099) | $81,898 | |
10 | $50,000 | $150,000 | ($39,143) | ($45,000) | $115,857 | ($34,757) | $81,100 |
EOY | Annual Receipts |
0 | 0 |
1 | $200,000.00 |
2 | $250,000.00 |
3 | $300,000.00 |
4 | $300,000.00 |
5 | $300,000.00 |
6 | $350,000.00 |
7 | $400,000.00 |
8 | $350,000.00 |
9 | $200,000.00 |
10 | $150,000.00 |
If the companyâs MARR is 15%
Related questions
Carlisle company is in need of new production line equipment that will increase the throughput and allow them to meet anticipated demand for the next 10 years. This equipment is the H5500 Robotics platform which has proven to be highly reliable when installed at the companyâs other divisions. The shipping costs, sales tax, installation cost for the H5500 will be $120,000. The equipment itself will cost $380,000. The operating and maintenance costs for the equipment is anticipated to be $30,000 per year escalating at the rate of inflation of 3% per year. The companyâs tax rate is 30%. If the annual receipts are as shown in the table below and using a straight line depreciation what is the companyâs anticipated before and after tax profit per year. Note, the salvage value of the equipment is expected to be $50000 at the end of the 10th year.
| EOY | Annual Receipts |
| 0 | 0 |
| 1 | $200,000.00 |
| 2 | $250,000.00 |
| 3 | $300,000.00 |
| 4 | $300,000.00 |
| 5 | $300,000.00 |
| 6 | $350,000.00 |
| 7 | $400,000.00 |
| 8 | $350,000.00 |
| 9 | $200,000.00 |
| 10 | $150,000.00 |
If the companyâs MARR is 15%
Is this a viable project?
Total Receipts & Disbursements Before Taxes
| EOY | Investments | Annual Receipts | Annual O&M |
| 0 | -$500,000.00 | $0.00 | |
| 1 | $200,000.00 | -$30,000.00 | |
| 2 | $250,000.00 | -$30,900.00 | |
| 3 | $300,000.00 | -$31,827.00 | |
| 4 | $300,000.00 | -$32,781.81 | |
| 5 | $300,000.00 | -$33,765.26 | |
| 6 | $350,000.00 | -$34,778.22 | |
| 7 | $400,000.00 | -$35,821.57 | |
| 8 | $350,000.00 | -$36,896.22 | |
| 9 | $200,000.00 | -$38,003.10 | |
| 10 | $50,000.00 | $150,000.00 | -$39,143.20 |
Have I identified all my cash flows now to determine my net cash flow (NCF)?
Total Receipts & Disbursements Before Taxes w/Depreciation
The depreciable amount is: $500,000 - $50,000 = $450,000
Useful Life is 10 Years
Depreciation per year: $450,000/10 = $45,000
| EOY | Investments | Annual Receipts | Annual O&M | Annual Depreciation |
| 0 | -$500,000.00 | $0.00 | $0.00 | $0.00 |
| 1 | $200,000.00 | -$30,000.00 | -$45,000.00 | |
| 2 | $250,000.00 | -$30,900.00 | -$45,000.00 | |
| 3 | $300,000.00 | -$31,827.00 | -$45,000.00 | |
| 4 | $300,000.00 | -$32,781.81 | -$45,000.00 | |
| 5 | $300,000.00 | -$33,765.26 | -$45,000.00 | |
| 6 | $350,000.00 | -$34,778.22 | -$45,000.00 | |
| 7 | $400,000.00 | -$35,821.57 | -$45,000.00 | |
| 8 | $350,000.00 | -$36,896.22 | -$45,000.00 | |
| 9 | $200,000.00 | -$38,003.10 | -$45,000.00 | |
| 10 | $50,000.00 | $150,000.00 | -$39,143.20 | -$45,000.00 |
Total Receipts & Disbursements Before Taxes Net Cash Flow (NCF)
| EOY | Investments | Annual Receipts | Annual O&M | Annual Depreciation | Before Tax NCF |
| 0 | -$500,000.00 | $0.00 | $0.00 | $0.00 | -$500,000.00 |
| 1 | $200,000.00 | -$30,000.00 | -$45,000.00 | $125,000.00 | |
| 2 | $250,000.00 | -$30,900.00 | -$45,000.00 | $174,100.00 | |
| 3 | $300,000.00 | -$31,827.00 | -$45,000.00 | $223,173.00 | |
| 4 | $300,000.00 | -$32,781.81 | -$45,000.00 | $222,218.19 | |
| 5 | $300,000.00 | -$33,765.26 | -$45,000.00 | $221,234.74 | |
| 6 | $350,000.00 | -$34,778.22 | -$45,000.00 | $270,221.78 | |
| 7 | $400,000.00 | -$35,821.57 | -$45,000.00 | $319,178.43 | |
| 8 | $350,000.00 | -$36,896.22 | -$45,000.00 | $268,103.78 | |
| 9 | $200,000.00 | -$38,003.10 | -$45,000.00 | $116,996.90 | |
| 10 | $50,000.00 | $150,000.00 | -$39,143.20 | -$45,000.00 | $115,856.80 |
| EOY | Investments | Annual Receipts | Annual O&M | Annual Depreciation | Before Tax NCF | Taxes | After Tax NCF |
| 0 | -$500,000.00 | $0.00 | $0.00 | $0.00 | -$500,000.00 | $0.00 | -$500,000.00 |
| 1 | $200,000.00 | -$30,000.00 | -$45,000.00 | $125,000.00 | -$37,500.00 | $87,500.00 | |
| 2 | $250,000.00 | -$30,900.00 | -$45,000.00 | $174,100.00 | -$52,230.00 | $121,870.00 | |
| 3 | $300,000.00 | -$31,827.00 | -$45,000.00 | $223,173.00 | -$66,951.90 | $156,221.10 | |
| 4 | $300,000.00 | -$32,781.81 | -$45,000.00 | $222,218.19 | -$66,665.46 | $155,552.73 | |
| 5 | $300,000.00 | -$33,765.26 | -$45,000.00 | $221,234.74 | -$66,370.42 | $154,864.31 | |
| 6 | $350,000.00 | -$34,778.22 | -$45,000.00 | $270,221.78 | -$81,066.53 | $189,155.24 | |
| 7 | $400,000.00 | -$35,821.57 | -$45,000.00 | $319,178.43 | -$95,753.53 | $223,424.90 | |
| 8 | $350,000.00 | -$36,896.22 | -$45,000.00 | $268,103.78 | -$80,431.14 | $187,672.65 | |
| 9 | $200,000.00 | -$38,003.10 | -$45,000.00 | $116,996.90 | -$35,099.07 | $81,897.83 | |
| 10 | $50,000.00 | $150,000.00 | -$39,143.20 | -$45,000.00 | $115,856.80 | -$34,757.04 | $81,099.76 |
Given the Before Tax NCF is in column I - Using Excel: IRR = IRR(I2:I12) = 36%
Given the After Tax NCF is in column k â Using Excel: IRR = IRR(k2:k12) = 24%
Given MARR = 15%, this is an acceptable project since the companyâs after tax IRR is 24%
Repeat the above analysis using a SOYD Depreciation and the following additional information
The Carlisle company in addition to the previous information supplied has applied for and received a tax credit of $15,000 for year 1. It is expected to be the same for each of the remaining 9 years. Note: you will need to research as to what is a tax credit and how is it used.
If the Carlisle Company used a SOYD Depreciation what is the
Before Tax Net Cash Flow?
After Tax Net Cash Flow?
After Tax Rate of Return?
Discuss these results and compare to the previous analysis:
What is different?
Which is better for the company to use, Straight Line or SOYD depreciation?
In your conclusions discuss the ramification on the IRR that depreciation and tax credits have.
A project will produce sales of 2,400 units a year for 4 years. The project requires the immediate purchase of equipment at a cost of $100,000. The equipment will be depreciated to a book value of $20,000 (not to zero) on a straight line basis. The equipment will be salvaged at the end of the project creating a $40,000 before-tax cash flow. It costs $18 in labor and materials to produce each unit, and the machinery requires $1,500 each year in maintenance. There are no other costs associated with production. Each unit has an anticipated sales price of $70. If the project is taken, Accounts Payable will immediately increase by $11,000 and Inventory will increase by $50,000.
| Part A: What is the after-tax salvage value of the equipment given a marginal tax rate of 25%?
| |||||||||||
| Part B: What is the Operating Cash Flow (OCF) per year?
| |||||||||||
| Part C: What is the firm's marginal revenue?
| |||||||||||
| Part D: What is the initial investment in Net Working Capital?
|
