Professional Documents
Culture Documents
10.1
dB= 4% t= 35%
dE= id=
dO= MARR= 15%
tCG= 17.5% N= 5
Year 0 1 2 3 4 5
Income Statement
Revenues 2,965,524 2,965,524 2,965,524 2,965,524 2,965,524
Expenses
Materials
Labour
Overhead
O&M 330,000 380,000 430,000 480,000 530,000
Debt interest - - - - -
CCA
Building @dB 250,000 490,000 470,400 451,584 433,521
Machines @dE - - - - -
Others @dO - - - - -
Taxable income 2,385,524 2,095,524 2,065,124 2,033,940 2,002,003
Income taxes @t 834,933 733,433 722,793 711,879 700,701
Net income 1,550,590 1,362,090 1,342,330 1,322,061 1,301,302
Cash Flow Statement
Operating activities
Net income 1,550,590 1,362,090 1,342,330 1,322,061 1,301,302
CCA 250,000 490,000 470,400 451,584 433,521
Investment activities
Land
Building (12,500,000) 14,000,000
Machines
Others
Disposal tax effect
Land -
Building (995,927)
Machines -
Others -
Financing activities
Principal portion - - - - -
Net cash flow (12,500,000) 1,800,590 1,852,090 1,812,730 1,773,645 14,738,896
PE(MARR) = -
AE(MARR) = -
IRR= 15.00%
The rent per apartment is $2,965,524/50 = $59,310.48/year.
*
10.2
dB= t= 35%
dE= 30% id=
dO= MARR=
tCG= N= 7
Year 0 1 2 3 4 5 6 7
Income Statement
Revenues 120,000 120,000 120,000 120,000 120,000 120,000 120,000
Expenses
Materials
Labour
Overhead
O&M
Debt interest - - - - - - -
CCA
Building @dB - - - - - - -
Machines @dE 27,750 47,175 33,023 23,116 16,181 11,327 7,929
Others @dO - - - - - - -
Taxable income 92,250 72,825 86,978 96,884 103,819 108,673 112,071
Income taxes @t 32,288 25,489 30,442 33,909 36,337 38,036 39,225
Net income 59,963 47,336 56,535 62,975 67,482 70,638 72,846
Cash Flow Statement
Operating activities
Net income 59,963 47,336 56,535 62,975 67,482 70,638 72,846
CCA 27,750 47,175 33,023 23,116 16,181 11,327 7,929
Investment activities
Land
Building
Machines (185,000) 40,000
Others
Disposal tax effect
Land -
Building -
Machines (7,525)
Others -
Financing activities
Principal portion - - - - - - -
Net cash flow (185,000) 87,713 94,511 89,558 86,091 83,663 81,964 113,250
PE(MARR) = $ 451,750
AE(MARR) = $ 64,536
IRR= 44.87%
*
An asterisk next to a problem number indicates that the solution is available to students
on the Companion Website.
10.3
dB= t= 40%
dE= 30% id=
dO= MARR= 15%
tCG= N= 6
Year 0 1 2 3 4 5 6
Income Statement
Revenues 25,000 25,000 25,000 25,000 25,000 25,000
Expenses
Materials
Labour
Overhead
O&M 7,000 7,000 7,000 7,000 7,000 7,000
Debt interest - - - - - -
CCA
Building @dB - - - - - -
Machines @dE 8,250 14,025 9,818 6,872 4,811 3,367
Others @dO - - - - - -
Taxable income 9,750 3,975 8,183 11,128 13,189 14,633
Income taxes @t 3,900 1,590 3,273 4,451 5,276 5,853
Net income 5,850 2,385 4,910 6,677 7,914 8,780
Cash Flow Statement
Operating activities
Net income 5,850 2,385 4,910 6,677 7,914 8,780
CCA 8,250 14,025 9,818 6,872 4,811 3,367
Investment activities
Land
Building
Machines (55,000) -
Others
Disposal tax effect
Land -
Building -
Machines 3,143
Others -
Financing activities
Principal portion - - - - - -
Net cash flow (55,000) 14,100 16,410 14,727 13,549 12,724 15,290
PE(MARR) = $ 35 Yes, buy the machine.
AE(MARR) = $ 9
IRR= 15.02%
The machine should be bought because its PE(MARR) is greater than 0.
*
10.4
dB= 4% t= 40%
dE= 30% id=
dO= MARR=
tCG= 20% N= 5
Year 0 1 2 3 4 5
Income Statement
Revenues 2,200,000 2,200,000 2,200,000 2,200,000 2,200,000
Expenses
Materials
Labour
Overhead
O&M 1,280,000 1,280,000 1,280,000 1,280,000 1,280,000
Debt interest - - - - -
CCA
Building @dB 10,000 19,600 18,816 18,063 17,341
Machines @dE 75,000 127,500 89,250 62,475 43,733
Others @dO - - - - -
Taxable income 835,000 772,900 811,934 839,462 858,927
Income taxes @t 334,000 309,160 324,774 335,785 343,571
Net income 501,000 463,740 487,160 503,677 515,356
Cash Flow Statement
Operating activities
Net income 501,000 463,740 487,160 503,677 515,356
CCA 85,000 147,100 108,066 80,538 61,073
Investment activities
Land (100,000) 115,000
Building (500,000) 575,000
Machines (500,000) 50,000
Others
Disposal tax effect
Land (3,000)
Building (48,528)
Machines 20,817
Others -
Financing activities
Principal portion - - - - -
Net cash flow (1,100,000) 586,000 610,840 595,226 584,215 1,285,718
PE(MARR) = $2,562,000
AE(MARR) = $ 512,400
IRR= 51.28%
10.5
Year: 1 2 3 4 5
Total distance/year (m): 2000 2000 2000 2000 2000
Production rate (m/hr) 5 5 5 4.5 4
Required hours/year: 400 400 400 444 500
Operating cost/year: 6000 6000 6000 6667 7500
dB= t= 34%
dE= 30% id=
dO= MARR=
tCG= N= 5
Year 0 1 2 3 4 5
Income Statement
Revenues - - - -
Expenses
Materials/Labour
Overhead
O&M 6,000 6,000 6,000 6,667 7500
Debt interest - - - - -
CCA
Building @dB - - - - -
Machines @dE 27,000 45900 32,130 22,491 55,744
Others @dO - - - - -
Taxable income (33,000) (51,900) (38,130) (29,158) (23,244)
Income taxes @t (11,220) (17,646) (12,964) (9,914) (7,903)
Net income (21,780) (34,254) (25,166) (19,244) (15,341)
Cash Flow Statement
Operating activities
Net income (21,780) (34,254) (25,166) (19,244) (15,341)
CCA 27,000 45,900 32,130 22,491 15,744
Investment activities
Land
Building
Machines (180,000) 40,000
Others
Disposal tax effect
Land -
Building -
Machines (1,110)
Others -
Financing activities
Principal portion - - - - -
Net cash flow (180,000) 5,220 11,646 6,964 3,247 39,293
PE(MARR) = $ (113,630)
AE(MARR) = $ (22,726)
IRR= -21.47%
*
10.6
dB= t= 35%
dE= 45% id=
dO= MARR= 13%
tCG= N= 5
Year 0 1 2 3 4 5
Income Statement
Revenues 52,000 52,000 52,000 52,000 52,000
Expenses
Materials
Labour
Overhead
O&M 32,000 12,000 12,000 12,000 12,000
Debt interest - - - - -
CCA
Building @dB - - - - -
Machines @dE 23,400 36,270 19,949 10,972 6,034
Others @dO - - - - -
Taxable income (3,400) 3,730 20,052 29,028 33,966
Income taxes @t (1,190) 1,306 7,018 10,160 11,888
Net income (2,210) 2,425 13,033 18,868 22,078
Cash Flow Statement
Operating activities
Net income (2,210) 2,425 13,033 18,868 22,078
CCA 23,400 36,270 19,949 10,972 6,034
Investment activities
Land
Building
Machines (104,000) -
Others
Disposal tax effect
Land -
Building -
Machines 2,581
Others -
Financing activities
Principal portion - - - - -
Net cash flow (104,000) 21,190 38,695 32,982 29,840 30,693
PE(MARR) = $ 2,874
AE(MARR) = $ 817
IRR= 14.09%
10.7
dB= t= 40%
dE= 45% id=
dO= MARR= 12%
tCG= N= 5
Year 0 1 2 3 4 5
Income Statement
Revenues 20,160 20,160 20,160 20,160 20,160
Expenses
Materials
Labour
Overhead
O&M 10,000 10,000 10,000 10,000 10,000
Debt interest - - - - -
CCA
Building @dB - - - - -
Machines @dE 4,163 6,452 3,549 1,952 1,073
Others @dO - - - - -
Taxable income 5,998 3,708 6,611 8,208 9,087
Income taxes @t 2,399 1,483 2,645 3,283 3,635
Net income 3,599 2,225 3,967 4,925 5,452
Cash Flow Statement
Operating activities
Net income 3,599 2,225 3,967 4,925 5,452
CCA 4,163 6,452 3,549 1,952 1,073
Investment activities
Land
Building
Machines (18,500) 1,850
Others
Disposal tax effect
Land -
Building -
Machines (215)
Others -
Financing activities
Principal portion - - - - -
Net cash flow (18,500) 7,761 8,677 7,515 6,877 8,160
PE(MARR) = $ 9,696
AE(MARR) = $ 2,690
IRR= 31.79%
10.8
dB= t= 40%
dE= 20% id=
dO= MARR= 12%
tCG= N= 6
Year 0 1 2 3 4 5 6
Income Statement
Revenues 300,000 300,000 300,000 300,000 300,000 300,000
Expenses
Materials 50,000 50,000 50,000 50,000 50,000 50,000
Labour 80,000 80,000 80,000 80,000 80,000 80,000
Overhead
O&M - - - - -
Debt interest - - - - - -
CCA
Building @dB - - - - - -
Machines @dE 12,000 21,600 17,280 13,824 11,059 8,847
Others @dO - - - - - -
Taxable income 158,000 148,400 152,720 156,176 158,941 161,153
Income taxes @t 63,200 59,360 61,088 62,470 63,576 64,461
Net income 94,800 89,040 91,632 93,706 95,364 96,692
Cash Flow Statement
Operating activities
Net income 94,800 89,040 91,632 93,706 95,364 96,692
CCA 12,000 21,600 17,280 13,824 11,059 8,847
Investment activities
Land
Building
Machines (120,000) -
Others
Disposal tax effect
Land -
Building -
Machines 14,156
Others -
Financing activities
Principal portion - - - - - -
Net cash flow (120,000) 106,800 110,640 108,912 107,530 106,424 119,695
PE(MARR) = $ 330,446
AE(MARR) = $ 80,373
IRR= 88.28%
10.9
dB= t= 40%
dE= 30% id=
dO= MARR=
tCG= N= 5
Year 0 1 2 3 4 5
Income Statement
Revenues 250,000 250,000 250,000 250,000 250,000
Expenses
Materials - - - -
Labour - - - -
Overhead
O&M 50,000 50,000 50,000 50,000 50,000
Debt interest - - - - -
CCA
Building @dB - - - - -
Machines @dE 45,000 76,500 53,550 37,485 26,240
Others @dO - - - - -
Taxable income 155,000 123,500 146,450 162,515 173,761
Income taxes @t 62,000 49,400 58,580 65,006 69,504
Net income 93,000 74,100 87,870 97,509 104,256
Cash Flow Statement
Operating activities
Net income 93,000 74,100 87,870 97,509 104,256
CCA 45,000 76,500 53,550 37,485 26,240
Investment activities
Land
Building
Machines (300,000) 5,000
Others
Disposal tax effect
Land -
Building -
Machines 22,490
Others -
Financing activities
Principal portion - - - - -
Net cash flow (300,000) 138,000 150,600 141,420 134,994 157,986
PE(MARR) = $ 423,000
AE(MARR) = $ 84,600
IRR= 38.32%
10.10
dB= t= 35%
dE= 35% id=
dO= MARR= 10%
tCG= N= 9
Year 0 1 2 3 4 5 6 7 8 9
Income Statement
Revenues 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Expenses
Materials - - - - - - - -
Labour - - - - - - - -
Overhead
O&M - - - - - - - -
Debt interest - - - - - - - - -
CCA
Building @dB - - - - - - - - -
Machines @dE 8,750 14,438 9,384 6,100 3,965 2,577 1,675 1,089 708
Others @dO - - - - - - - - -
Taxable income 1,250 (4,438) 616 3,900 6,035 7,423 8,325 8,911 9,292
Income taxes @t 438 (1,553) 215 1,365 2,112 2,598 2,914 3,119 3,252
Net income 813 (2,884) 400 2,535 3,923 4,825 5,411 5,792 6,040
Cash Flow Statement
Operating activities
Net income 813 (2,884) 400 2,535 3,923 4,825 5,411 5,792 6,040
CCA 8,750 14,438 9,384 6,100 3,965 2,577 1,675 1,089 708
Investment
activities
Land
Building
Machines (50,000) -
Others
Disposal tax effect
Land -
Building -
Machines 460
Others -
Financing activities
Principal portion - - - - - - - - -
Net cash flow (50,000) 9,563 11,553 9,785 8,635 7,888 7,402 7,086 6,881 7,208
PE(MARR) = $ 469
AE(MARR) = $ 82
IRR= 10.26%
*
10.11
dB= t= 40%
dE= 30% id=
dO= MARR= 15%
tCG= N= 5
Year 0 1 32 4 5
Income Statement
Revenues 130,000 130,000 130,000 130,000 130,000
Expenses
Materials - - - -
Labour - - - -
Overhead
O&M 20,000 20,000 20,000 20,000 20,000
Debt interest - - - - -
CCA
Building @dB - - - - -
Machines @dE 45,017 76,529 53,570 37,499 26,249
Others @dO - - - - -
Taxable income 64,983 33,471 56,430 72,501 83,751
Income taxes @t 25,993 13,388 22,572 29,000 33,500
Net income 38,990 20,083 33,858 43,501 50,250
Cash Flow Statement
Operating activities
Net income 38,990 20,083 33,858 43,501 50,250
CCA 45,017 76,529 53,570 37,499 26,249
Investment activities
Land
Building
Machines (300,113) -
Others
Disposal tax effect
Land -
Building -
Machines 24,499
Others -
Financing activities
Principal portion - - - - -
Net cash flow (300,113) 84,007 96,612 87,428 81,000 100,999
PE(MARR) = $ -
AE(MARR) = $ -
IRR= 15.00%
dB= 4% t= 40%
dE= 30% id=
dO= 0% MARR= 15%
tCG= 20% N= 10
Year 0 1 2 3 4 5 6 7 8 9 10
Income Statement
Revenues 875,000 875,000 875,000 875,000 875,000 875,000 875,000 875,000 875,000 875,000
Expenses
Materials - - - - - - - - -
Labour - - - - - - - - -
Overhead
O&M 425,000 425,000 425,000 425,000 425,000 425,000 425,000 425,000 425,000 425,000
Debt interest - - - - - - - - - -
CCA
Building @dB 30,000 58,800 56,448 54,190 52,022 49,942 47,944 46,026 44,185 42,418
Machines @dE 75,000 127,500 89,250 62,475 43,733 30,613 21,429 15,000 10,500 7,350
Others @dO - - - - - - - - - -
Taxable income 345,000 263,700 304,302 333,335 354,245 369,446 380,627 388,974 395,315 400,232
Income taxes @t 138,000 105,480 121,721 133,334 141,698 147,778 152,251 155,589 158,126 160,093
Net income 207,000 158,220 182,581 200,001 212,547 221,667 228,376 233,384 237,189 240,139
Cash Flow Statement
Operating activities
Net income 207,000 158,220 182,581 200,001 212,547 221,667 228,376 233,384 237,189 240,139
CCA 105,000 186,300 145,698 116,665 95,755 80,554 69,373 61,026 54,685 49,768
Investment activities
Land (250,000) 500,000
10.13
dB= t= 35%
dE= 30% id=
dO= 0% MARR= 18%
tCG= N= 6
Year 0 1 2 3 4 5 6
Income Statement
Revenues 55,800 55,800 55,800 55,800 55,800 55,800
Expenses
Materials - - - - -
Labour - - - - -
Overhead
O&M 8,120 8,120 8,120 8,120 8,120 8,120
Debt interest - - - - - -
CCA
Building @dB - - - - - -
Machines @dE 9,825 16,703 11,692 8,184 5,729 4,010
Others @dO - - - - - -
Taxable income 37,855 30,978 35,988 39,496 41,951 43,670
Income taxes @t 13,249 10,842 12,596 13,824 14,683 15,284
Net income 24,606 20,135 23,392 25,672 27,268 28,385
Cash Flow Statement
Operating activities
Net income 24,606 20,135 23,392 25,672 27,268 28,385
CCA 9,825 16,703 11,692 8,184 5,729 4,010
Investment activities
Land
Building
Machines (65,500) 3,000
Others (10,000) 10,000
Disposal tax effect
Land -
Building -
Machines 2,225
Others -
Financing activities
Principal portion - - - - - -
Net cash flow (75,500) 34,431 36,838 35,084 33,856 32,997 47,621
PE(MARR) = $ 51,015
AE(MARR) = $ 14,586
IRR= 41.36%
dB= 4% t= 40%
dE= 30% id=
dO= 0% MARR= 20%
tCG= N= 10
1 2 3
Year -2 -1 0 1 2 3 4 5 6 7 8 9 10
Income Statement
Revenues 45,000 49,500 54,450 59,895 65,885 72,473 65,226 58,703 52,833 47,550
Expenses
Materials - - - - - - - - -
Labour - - - - - - - - -
Overhead
O&M 500 2,500 2,000 36,000 39,600 43,560 47,916 52,708 57,978 52,181 46,962 42,266 38,040
Debt interest - - - - - - - - - -
CCA
Building @dB 40 78 75 72 69 67 64 61 59 57
Machines @dE 450 765 536 375 262 184 129 90 63 44
Others @dO - - - - - - - - - -
Taxable income (500) (2,500) (2,000) 8,510 9,057 10,279 11,532 12,845 14,244 12,853 11,589 10,445 9,409
Income taxes @t (200) (1,000) (800) 3,404 3,623 4,112 4,613 5,138 5,698 5,141 4,636 4,178 3,764
Net income (300) (1,500) (1,200) 5,106 5,434 6,168 6,919 7,707 8,547 7,712 6,954 6,267 5,646
Cash Flow Statement
Operating activities
Net income (300) (1,500) (1,200) 5,106 5,434 6,168 6,919 7,707 8,547 7,712 6,954 6,267 5,646
CCA - - - 490 843 611 447 332 250 192 151 122 101
Investment activities
Land
Effects of Borrowing
10.15
dB= 4% t= 35%
dE= id= 10%
dO= MARR= 15%
tCG= 17.5% N= 5
Year 0 1 2 3 4 5
Income Statement
Revenues 1,896,945 1,896,945 1,896,945 1,896,945 1,896,945
Expenses
Materials
Labour
Overhead
O&M 330,000 380,000 430,000 480,000 530,000
Debt interest 1,250,000 1,045,253 820,032 572,288 299,770
CCA
Building @dB 250,000 490,000 470,400 451,584 433,521
Machines @dE - - - - -
Others @dO - - - - -
Taxable income 66,945 (18,308) 176,513 393,073 633,654
Income taxes @t 23,431 (6,408) 61,780 137,576 221,779
Net income 43,514 (11,900) 114,734 255,497 411,875
Cash Flow Statement
Operating activities
Net income 43,514 (11,900) 114,734 255,497 411,875
CCA 250,000 490,000 470,400 451,584 433,521
Investment activities
Land
Building (12,500,00) 14,000,000
Machines
Others
Disposal tax effect
Land -
Building (995,927)
Machines -
Others -
Financing activities
Principal portion 12,500,000 (2,047,469) (2,252,215) (2,477,437) (2,725,181) (2,997,699)
Net cash flow - (1,753,954) (1,774,116) (1,892,303) (2,018,099) 10,851,771
PE(MARR) = $130,509
AE(MARR) = $38,933
IRR= 16.08%
Annual rent per apartment needed = $ 37,939
*
10.16
dB= t= 35%
dE= 30% id= 10%
dO= MARR=
tCG= N= 7
Year 0 1 2 3 4 5 6 7
Income Statement
Revenues 120,000 120,000 120,000 120,000 120,000 120,000 120,000
Expenses
Materials
Labour
Overhead
O&M
Debt interest 18,500 14,800 11,100 7,400 3,700
CCA
Building @dB - - - - - - -
Machines @dE 27,750 47,175 33,023 23,116 16,181 11,327 7,929
Others @dO - - - - - - -
Taxable income 73,750 58,025 75,878 89,484 100,119 108,673 112,071
Income taxes @t 25,813 20,309 26,557 31,319 35,042 38,036 39,225
Net income 47,938 37,716 49,320 58,165 65,077 70,638 72,846
Cash Flow Statement
Operating activities
Net income 47,938 37,716 49,320 58,165 65,077 70,638 72,846
CCA 27,750 47,175 33,023 23,116 16,181 11,327 7,929
Investment activities
Land
Building
Machines (185,000) 40,000
Others
Disposal tax effect
Land -
Building -
Machines (7,525)
Others -
Financing activities
Principal portion 185,000 (37,000) (37,000) (37,000) (37,000) (37,000)
Net cash flow - 38,688 47,891 45,343 44,281 44,258 81,964 113,250
PE(MARR) = $ 415,675
AE(MARR) = $ 59,382
IRR= Undefined
10.17
dB= t= 40%
dE= 30% id= 11%
dO= MARR=
tCG= N= 5
Year 0 1 2 3 4 5
Income Statement
Revenues 250,000 250,000 250,000 250,000 250,000
Expenses
Materials - - - -
Labour - - - -
Overhead
O&M 50,000 50,000 50,000 50,000 50,000
Debt interest 16,500 13,851 10,910 7,645 4,022
CCA
Building @dB - - - - -
Machines @dE 45,000 76,500 53,550 37,485 26,240
Others @dO - - - - -
Taxable income 138,500 109,649 135,540 154,870 169,739
Income taxes @t 55,400 43,860 54,216 61,948 67,895
Net income 83,100 65,790 81,324 92,922 101,843
Cash Flow Statement
Operating activities
Net income 83,100 65,790 81,324 92,922 101,843
CCA 45,000 76,500 53,550 37,485 26,240
Investment activities
Land
Building
Machines (300,000) 5,000
Others
Disposal tax effect
Land -
Building -
Machines 22,490
Others -
Financing activities
Principal portion 150,000 (24,086) (26,735) (29,676) (32,940) (36,564)
Net cash flow (150,000) 104,014 115,555 105,198 97,467 119,009
PE(MARR) = $ 391,243 Annual Loan Payment = $ 40,586
AE(MARR) = $ 78,249
IRR= 65.93%
10.18
dB= t= 40%
dE= 100% id= 10%
dO= MARR= 15%
tCG= N= 2
Year 0 1 2
Income Statement
Revenues 30,000 30,000
Expenses
Materials
Labour
Overhead
O&M 5,000 5,000
Debt interest 1,000 524
CCA
Building @dB - -
Machines @dE 10,000 10,000
Others @dO - -
Taxable income 14,000 14,476
Income taxes @t 5,600 5,790
Net income 8,400 8,686
Cash Flow Statement
Operating activities
Net income 8,400 8,686
CCA 10,000 10,000
Investment activities
Land
Building
Machines (20,000) 8,000
Others
Disposal tax effect
Land -
Building -
Machines (3,200)
Others -
Financing activities
Principal portion 10,000 (4,762) (5,238)
Net cash flow (10,000) 13,638 18,248
PE(MARR) = $15,657 Annual loan payment = $5,762
AE(MARR) = $9,631
IRR= 119.51%
10.19
dB= t= 40%
dE= 30% id= 9%
dO= MARR= 18%
tCG= N= 10
Year 0 1 2 3 4 5 6 7 8 9 10
Income Statement
Revenues 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000
Expenses
Materials
Labour
Overhead
O&M
Debt interest 13,500 9,000 4,500
CCA
Building @dB - - - - - - - - - -
Machines @dE 30,000 51,000 35,700 24,990 17,493 12,245 8,572 6,000 4,200 2,940
Others @dO - - - - - - - - - -
Taxable income 91,500 75,000 94,800 110,010 117,507 122,755 126,428 129,000 130,800 132,060
Income taxes @t 36,600 30,000 37,920 44,004 47,003 49,102 50,571 51,600 52,320 52,824
Net income 54,900 45,000 56,880 66,006 70,504 73,653 75,857 77,400 78,480 79,236
Cash Flow Statement
Operating activities
Net income 54,900 45,000 56,880 66,006 70,504 73,653 75,857 77,400 78,480 79,236
CCA 30,000 51,000 35,700 24,990 17,493 12,245 8,572 6,000 4,200 2,940
Investment activities
Land
Building
Machines (200,000) 20,000
Others
Disposal tax effect
Land -
Building -
Machines (5,256)
Others -
Financing activities
Principal portion 150,000 (50,000) (50,000) (50,000)
Net cash flow (50,000) 34,900 46,000 42,580 90,996 87,997 85,898 84,429 83,400 82,680 96,920
PE(MARR) = $241,597
AE(MARR) = $53,759
IRR= 92.24% Yes, justified
10.20
dB= t= 35%
dE= 30% id= 10%
dO= MARR= 18%
tCG= N= 5
Year 0 1 2 3 4 5
Income Statement
Revenues - - - -
Expenses
Materials
Labour
Overhead
O&M
Debt interest 84,000 70,241 55,106 38,458 20,145
CCA
Building @dB - - - - -
Machines @dE 315,000 535,500 374,850 262,395 183,677
Others @dO - - - - -
Taxable income (399,000) (605,741) (429,956) (300,853) (203,821)
Income taxes @t (139,650) (212,009) (150,485) (105,298) (71,337)
Net income (259,350) (393,732) (279,471) (195,554) (132,484)
Cash Flow Statement
Operating activities
Net income (259,350) (393,732) (279,471) (195,554) (132,484)
CCA 315,000 535,500 374,850 262,395 183,677
Investment activities
Land
Building
Machines (2,100,000) 210,000
Others
Disposal tax effect
Land -
Building -
Machines 76,502
Others -
Financing activities
Principal portion 840,000 (137,590) (151,349) (166,484) (183,132) (201,445)
Net cash flow (1,260,000) (81,940) (9,581) (71,105) (116,291) 136,250
PE(MARR) = $(1,380,024) Annual loan payment = $ 221,590
AE(MARR) = $(441,301)
IRR= Undefined
10.21
dB= t= 36%
dE= 30% id= 12%
dO= MARR= 15%
tCG= N= 6
Year 0 1 2 3 4 5 6
Income Statement
Revenues 10,000 10,000 10,000 10,000 10,000 10,000
Expenses
Materials
Labour
Overhead
O&M
Debt interest 4,800 4,209 3,546 2,804 1,973 1,042
CCA
Building @dB - - - - - -
Machines @dE 6,000 10,200 7,140 4,998 3,499 2,449
Others @dO - - - - - -
Taxable income (800) (4,409) (686) 2,198 4,528 6,509
Income taxes @t (288) (1,587) (247) 791 1,630 2,343
Net income (512) (2,821) (439) 1,407 2,898 4,165
Cash Flow Statement
Operating activities
Net income (512) (2,821) (439) 1,407 2,898 4,165
CCA 6,000 10,200 7,140 4,998 3,499 2,449
Investment activities
Land
Building
Machines (40,000) 3,000
Others
Disposal tax effect
Land -
Building -
Machines 977
Others -
Financing activities
Principal portion 40,000 (4,929) (5,521) (6,183) (6,925) (7,756) (8,687)
Net cash flow - 559 1,858 518 (520) (1,359) 1,905
PE(MARR) = $2,082 Annual loan payment = $ 9,729
AE(MARR) = $550
IRR= Undefined IRR does not exist. Cannot use the IRR method.
Acceptable based on the PE criterion.
dB= t= 40%
dE= 30% id= 10%
dO= MARR= 14%
tCG= N= 8
Year 0 1 2 3 4 5 6 7 8
Income Statement
Revenues 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000
Expenses
Materials
Labour
Overhead
O&M 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000
Debt interest 4,000 3,650 3,265 2,842 2,377 1,865 1,301 682
CCA
Building @dB - - - - - - - -
Machines @dE 16,500 28,050 19,635 13,745 9,621 6,735 4,714 3,300
Others @dO - - - - - - - -
Taxable income 14,500 3,300 12,100 18,413 23,002 26,401 28,984 31,018
Income taxes @t 5,800 1,320 4,840 7,365 9,201 10,560 11,594 12,407
Net income 8,700 1,980 7,260 11,048 13,801 15,840 17,391 18,611
Cash Flow Statement
Operating activities
Net income 8,700 1,980 7,260 11,048 13,801 15,840 17,391 18,611
CCA 16,500 28,050 19,635 13,745 9,621 6,735 4,714 3,300
Investment activities
Land
Building
Machines (110,000) 10,000
Others
Disposal tax effect
Land -
Building -
Machines (920)
Others -
Financing activities
Principal portion 40,000 (3,498) (3,848) (4,232) (4,656) (5,121) (5,633) (6,196) (6,816)
Net cash flow (70,000) 21,702 26,182 22,662 20,137 18,301 16,942 15,908 24,175
PE(MARR) = $28,459 Annual loan payment = $7,498
AE(MARR) = $6,135
IRR= 26.00%
*
10.24
*
10.27 Option 1: Leasing
dB= t= 40% Lease
dE= id= cost
dO= MARR= 12% Beginnin
tCG= N= 30 g?
1
Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Input Data:
Revenues - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Expenses
Materials
Labour
Overhead - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
O&M 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000 84,000
Investments
Land
Building
Machines
Others
Borrowed Money:
Calculated Entries:
Debt principal: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Debt interest - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CCA
Building @dB - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Machines @dE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Others @dO - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Disposal tax effect
Land -
Building -
Machines -
Others -
Cash Flow Elements:
Revenue (1-t): - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- Costs (1-t): (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) -
+ Beginning adjust? (84,000) 33,600
- Interest (1-t): - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
+ t CCA: - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Investments - -
Debts: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Net Cash Flow: (84,000) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) (50,400) 33,600
PE(MARR) = $(487,178)
AE(MARR) = $(60,480)
IRR= Undefined
*
10.27 Option 2: Purchase
dB= 4% t= 40% Lease cost
dE= id= Beginning
dO= MARR= 12% ?
tCG= N= 30 1
Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Input Data:
Revenues - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Expenses
Materials
Labour
Overhead 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500
O&M (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000) (60,000)
Investments
Land 150,000 150,000
Building 700,000 70,000
Machines
Others
Borrowed Money:
Calculated Entries:
Debt principal: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Debt interest - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CCA
Building @dB 14,000 27,440 26,342 25,289 24,277 23,306 22,374 21,479 20,620 19,795 19,003 18,243 17,513 16,813 16,140 15,495 14,875 14,280 13,709 13,160 12,634 12,129 11,643 11,178 10,731 10,301 9,889 9,494 9,114 8,749
Machines @dE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Others @dO - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Disposal tax effect
Land -
Building 55,994
Machines -
Others -
Cash Flow Elements:
Revenue (1-t): - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- Costs (1-t): 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 10,500 (25,500)
+ Beginning adjust? 60,000 (24,000)
- Interest (1-t): - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
+ t CCA: 5,600 10,976 10,537 10,115 9,711 9,322 8,950 8,592 8,248 7,918 7,601 7,297 7,005 6,725 6,456 6,198 5,950 5,712 5,483 5,264 5,054 4,851 4,657 4,471 4,292 4,121 3,956 3,797 3,646 3,500
Investments (850,000) 275,994
Debts: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Net Cash Flow: (790,000) 16,100 21,476 21,037 20,615 20,211 19,822 19,450 19,092 18,748 18,418 18,101 17,797 17,505 17,225 16,956 16,698 16,450 16,212 15,983 15,764 15,554 15,351 15,157 14,971 14,792 14,621 14,456 14,297 14,146 229,994
PE(MARR) = $(632,662
)
AE(MARR) = $(78,541)
IRR= -0.43%
*
10.27 Option 3: Remodelling
dB= 4% t= 40% Lease cost
dE= id= Beginning?
dO= MARR= 12% 1
tCG= N= 30
Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Input Data:
Revenues - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Expenses
Materials
Labour
Overhead 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000 33,000
O&M 9,000 9,500 10,000 10,500 11,000 11,500 12,000 12,500 13,000 13,500 14,000 14,500 15,000 15,500 16,000 16,500 17,000 17,500 18,000 18,500 19,000 19,500 20,000 20,500 21,000 21,500 22,000 22,500 23,000 23,500
Investments
Land 60,000
Building 300,000 60,000
Machines
Others
Borrowed Money:
Calculated Entries:
Debt principal: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Debt interest - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CCA
Building @dB 6,000 11,760 11,290 10,838 10,404 9,988 9,589 9,205 8,837 8,484 8,144 7,818 7,506 7,205 6,917 6,641 6,375 6,120 5,875 5,640 5,415 5,198 4,990 4,790 4,599 4,415 4,238 4,069 3,906 3,750
Machines @dE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Others @dO - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Disposal tax effect
Land -
Building 11,998
Machines -
Others -
Cash Flow Elements:
Revenue (1-t): - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- Costs (1-t): (25,500) (25,800) (26,100) (26,400) (26,700) (27,000) (27,300) (27,600) (27,900) (28,200) (28,500) (28,800) (29,100) (29,400) (29,700) (30,000) (30,300) (30,600) (30,900) (31,200) (31,500) (31,800) (32,100) (32,400) (32,700) (33,000) (33,300) (33,600) (33,900) (19,800)
+ Beginning adjust? (9,000) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) 9,400
- Interest (1-t): - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
+ t CCA: (300,000) 2,400 4,704 4,516 4,335 4,162 3,995 3,836 3,682 3,535 3,393 3,258 3,127 3,002 2,882 2,767 2,656 2,550 2,448 2,350 2,256 2,166 2,079 1,996 1,916 1,840 1,766 1,695 1,627 1,562 1,500
Investments 131,998
Debts: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Net Cash Flow: ( 309,000) (23,300) (21,296) (21,784) (22,265) (22,738) (23,205) (23,664) (24,118) (24,565) (25,007) (25,442) (25,873) (26,298) (26,718) (27,133) (27,544) (27,950) (28,352) (28,750) (29,144) (29,534) (29,921) (30,304) (30,684) (31,060) (31,434) (31,805) (32,173) (32,538) 123,097
PE(MARR) = $(500,353)
AE(MARR) = $(62,116)
IRR= Undefined
Conclusion: Option 1 (leasing) is the best as it has the least negative PE value.
Lease-Versus-Buy Decisions
10.29 Option 1: Leasing
*
10.30 The buy option
*
10.30 The lease option
*
10.34 The buy option
*
10.34 The lease option
dB= 4% t= 40%
dE= 30% id=
dO= MARR= 15%
tCG= 20% N= 12%
Year 0 1 2 3 4 5 6 7 8 9 10 11 12
Income Statement
Revenues 51,000 51,000 51,000 51,000 85,000 85,000 85,000 136,000 136,000 136,000 136,000 136,000
Expenses
Materials
Labour
Overhead
O&M 36,000 36,000 36,000 36,000 60,000 60,000 60,000 96,000 96,000 96,000 96,000 96,000
Debt interest - - - - - - - - - - - -
CCA
Building @dB 800 1,568 1,505 1,445 1,387 1,332 1,279 1,227 1,178 1,131 1,086 1,042
Machines @dE 14,250 24,225 16,958 11,870 8,309 5,816 4,071 2,850 1,995 1,397 978 684
Others @dO - - - - - - - - - - - -
Taxable income (50) (10,793) (3,463) 1,685 15,304 17,852 19,650 35,923 36,827 37,472 37,937 38,273
Income taxes @t (20) (4,317) (1,385) 674 6,121 7,141 7,860 14,369 14,731 14,989 15,175 15,309
Net income (30) (6,476) (2,078) 1,011 9,182 10,711 11,790 21,554 22,096 22,483 22,762 22,964
Cash Flow Statement
Operating activities
Net income (30) (6,476) (2,078) 1,011 9,182 10,711 11,790 21,554 22,096 22,483 22,762 22,964
CCA 15,050 25,793 18,463 13,315 9,696 7,148 5,350 4,077 3,173 2,528 2,063 1,727
Investment activities
(c) The project should be rejected as its IRR is lower than the MARR of 15%.
Net Income $2,605 $1,424 $2,235 $2,814 $3,226 $3,227 $3,226 $3,744 $4,260 $4,260
Cash Flow Statement
Operating Activities:
Net Income $2,605 $1,424 $2,235 $2,814 $3,226 $3,227 $3,226 $3,744 $4,260 $4,260
Depreciation $2,758 $4,727 $3,376 $2,411 $1,723 $1,722 $1,723 $861 $0 $0
Investment Activities:
Investment ($19,300)
Salvage $500
Gains Tax ($200)
Working capital ($2,500) $2,500
Net Cash Flow ($21,800) $5,363 $6,151 $5,610 $5,224 $4,949 $4,949 $4,949 $4,604 $4,260 $7,060
dB= t= 40%
dE= 30% id=
dO= MARR= 20%
tCG= N= 6
Year 0 1 2 3 4 5 6
Income Statement
Revenues 349,000 349,000 349,000 349,000 349,000 349,000
Expenses
Materials 140,000 140,000 140,000 140,000 140,000 140,000
Labour
Overhead 20,000
O&M 36,000 36,000 36,000 36,000 36,000 36,000
Debt interest - - - - - -
CCA
Building @dB - - - - - -
Machines @dE 36,000 61,200 42,840 29,988 20,992 14,694
Others @dO - - - - - -
Taxable income 117,000 111,800 130,160 143,012 152,008 158,306
Income taxes @t 46,800 44,720 52,064 57,205 60,803 63,322
Net income 70,200 67,080 78,096 85,807 91,205 94,984
Cash Flow Statement
Operating activities
Net income 70,200 67,080 78,096 85,807 91,205 94,984
CCA 36,000 61,200 42,840 29,988 20,992 14,694
Investment activities
Land
Building
Machines (240,000) 30,000
Others
Disposal tax effect
Land -
Building -
Machines 1,715
Others -
Financing activities
Principal portion - - - - - -
Net cash flow (240,000) 106,200 128,280 120,936 115,795 112,197 141,392
PE(MARR) = $155,853 -
AE(MARR) = $46,866
IRR= 43.31%
dB= t= 40%
dE= 30% id= 13%
dO= MARR= 20%
tCG= N= 6
Year 0 1 23 4 5 6
Income Statement
Revenues 349,000 349,000 349,000 349,000 349,000 349,000
Expenses
Materials 140,000 140,000 140,000 140,000 140,000 140,000
Labour
Overhead 20,000
O&M 36,000 36,000 36,000 36,000 36,000 36,000
Debt interest 31,200 27,451 23,215 18,428 13,019 6,907
CCA
Building @dB - - - - - -
Machines @dE 36,000 61,200 42,840 29,988 20,992 14,694
Others @dO - - - - - -
Taxable income 85,800 84,349 106,945 124,584 138,989 151,399
Income taxes @t 34,320 33,740 42,778 49,833 55,596 60,560
Net income 51,480 50,609 64,167 74,750 83,394 90,839
Cash Flow Statement
Operating activities
Net income 51,480 50,609 64,167 74,750 83,394 90,839
CCA 36,000 61,200 42,840 29,988 20,992 14,694
Investment activities
Land
Building
Machines (240,000) 30,000
Others
Disposal tax effect
Land -
Building -
Machines 1,715
Others -
Financing activities
Principal portion 240,000 (28,837) (32,586) (36,822) (41,608) (47,018) (53,130)
Net cash flow - 58,643 79,224 70,185 63,130 57,368 84,118
PE(MARR) = $226,173 Annual debt payment $60,037
AE(MARR) = $68,011
IRR= Undefined
Machines @dE 31,350 53,295 37,307 26,115 18,280 12,796 8,957 6,270 4,389 3,072
Others @dO - - - - - - - - -
Disposal tax effect
Land -
Building -
Machines 2,509
Others -
Cash Flow Elements:
Revenue (1-t): - - - - - - - - - -
- Costs (1-t): (13,000) (13,000) (13,000) (13,000) (13,000) (13,000) (13,000) (13,000) (13,000) -
+ Beginning adjust? (20,000) - - - - - - - - - 7,000
- Interest (1-t): (13,585) (11,360) (8,912) (6,220) (3,258) - - - - -
+ t CCA: 10,973 18,653 13,057 9,140 6,398 4,479 3,135 2,195 1,536 1,075
Investments (209,000) 2,509
Debts: 209,000 (34,234) (37,657) (41,423) (45,565) (50,122) - - - - -
Net Cash Flow: (20,000) (49,846) (43,364) (50,278) (55,645) (59,981) (8,521) (9,865) (10,805) (11,464) 10,584
PE(MARR) = $(202,396) Annual debt pay: $55,134
AE(MARR) = $(40,328)
IRR= Undefined
(b) The buy option is better because its PE value is less negative.