Original Message------
I understand that cost of Equipment invariably includes installation charges also. So in the given problem the cost of machinery is 450000 + 25000= 475000 taken for the purpose of caliculation of depreciation. Plz guide me if I am wrong in my conceptual understanding.
Regards
Balaji
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BALAJI TIPPARAJU
Student
GUNTUR
India
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Original Message:
Sent: 09-02-2015 04:22 AM
From: Lakshmy Varma
Subject: PART 2 Net PV
| Description |
Year |
Cash flow |
Discount factor |
DCF |
| Cost of asset |
0 |
(450,000.00) |
1.000 |
(450,000.00) |
| Installation |
0 |
(25,000.00) |
1.000 |
(25,000.00) |
| Tax benefit on installation |
1 |
10,000.00 |
0.893 |
8,928.57 |
| Tax benefit on Depreciation |
1 |
45,000.00 |
0.893 |
40,178.57 |
| Savings on labour cost net of tax |
1 |
105,000.00 |
0.893 |
93,750.00 |
| Tax benefit on Depreciation |
2 |
68,400.00 |
0.797 |
54,528.06 |
| Savings on labour cost net of tax |
2 |
105,000.00 |
0.797 |
83,705.36 |
| Tax benefit on Depreciation |
3 |
66,600.00 |
0.712 |
47,404.56 |
| Savings on labour cost net of tax |
3 |
105,000.00 |
0.712 |
74,736.93 |
| Net Present Value |
(71,767.95) |
This is what I get.
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Lakshmy Varma
Accountant
Millennium Offshore Services
Ajman
United Arab Emirates
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Original Message:
Sent: 09-02-2015 03:33 AM
From: Inam Ullah
Subject: PART 2 Net PV
The Eat-Right Company has been disappointed by previous capital budgeting decisions using the payback method. A new requirement has been implemented that requires discounted cash flow analysis to be used to compute the net present value of proposed purchases over $300,000. The Food Processing Department of the Eat-Right Company is considering the acquisition of a new machine that will reduce labor costs by a pre-tax amount of $175,000 per year. Other information regarding the possible acquisition is as follows.
Which of the following best indicates the net present value of the proposed investment, and the appropriate acquisition decision?
a. Approximately $73,000; recommend making the investment.
b. Approximately ($73,000); recommend not making the investment.
c. Approximately $55,000; recommend making the investment.
d. Approximately ($55,000); recommend not making the investment.
Correct answer is b.
but I m not getting it, please help.
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Inam Ullah
Accountant
JC Maclean International FZCO
DUBAI
United Arab Emirates
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