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Table 1

Project Net Cash Flows


Year
Net Cost
0 $
(212,500)
1
2
3
4
5
6
7
8

Dep Tax Savings After-Tax Cost Savings Net Cash Flow


$
(212,500)
$
17,000 $
36,000 $
53,000
$
27,200 $
36,000 $
63,200
$
16,150 $
36,000 $
52,150
$
10,200 $
36,000 $
46,200
$
9,350 $
36,000 $
45,350
$
5,100 $
36,000 $
41,100
$
$
36,000 $
36,000
$
$
36,000 $
36,000

Net Cost Computations (Column 1)


Cost of new system
$
(200,000)
Installation costs
$
(12,500)
Value of old system
$
Removal cost
$
Total Cost
$
(212,500)
Depreciation Tax Savings Computations (Column 2)
depreciable basis =
federal tax rate =
Year
1
2
3
4
5
6
7
8

212,500
40%

MACRS Dep Allowance


0.20 $
42,500
0.32 $
68,000
0.19 $
40,375
0.12 $
25,500
0.11 $
23,375
0.06 $
12,750
0.00 $
0.00 $
1.00 $
212,500

Dep Expense Shield


$
17,000 (=40%*42,500)
$
27,200
$
16,150
$
10,200
$
9,350
$
5,100
$
$
$
85,000

After-Tax Cost Savings Computations (Column 3)


pre-tax savings =
after-tax =

$
$

60,000
36,000 (=(1-40%)*60,000)

Net Cash Flow Computations (Column 4)


net cash flow = sum of three columns
example:
Year
Net Cost
Dep Tax Savings
1 $
$
17,000

After-Tax Cost Savings Net Cash Flow


$
36,000 $
53,000 (=0+17000+36000)

Computation 2.1
WACC =
Year
0
1
2
3
4
5
6
7
8

11%
Net Cash Flow
$
(212,500)
$
53,000
$
63,200
$
52,150
$
46,200
$
45,350
$
41,100
$
36,000
$
36,000

PVF
1
0.900900901
0.811622433
0.731191381
0.658730974
0.593451328
0.534640836
0.481658411
0.433926496
NPV =

PV
$ (212,500)
$ 47,748
$ 51,295
$ 38,132
$ 30,433
$ 26,913
$ 21,974
$ 17,340
$ 15,621
$ 36,955

Computations 4.1 - Payback Method


Year
0
1
2
3
4
5
6
7
8

Net Cash Flow


$
(212,500)
$
53,000
$
63,200
$
52,150
$
46,200
$
45,350
$
41,100
$
36,000
$
36,000

Cumulative CF
$
(212,500)
$
(159,500)
$
(96,300)
$
(44,150)
$
2,050
$
47,400
$
88,500
$
124,500
$
160,500

Year before full recovery =


Unrecovered cost =
Cash flow during year =
Payback period =

$
$

3
44,150
46,200
3.96

Year before full recovery =


Unrecovered cost =
Cash flow during year =
Payback period =

$
$

5
17,979
21,794
5.82

Computations 4.2 - Discounted Payback Method


Year
0
1
2
3
4
5
6
7
8

$
$
$
$
$
$
$
$
$

PV of CFs
(212,500)
47,748
51,295
38,132
30,433
26,913
21,974
17,340
15,621

Cum PV of CFs
$
(212,500)
$
(164,752)
$
(113,457)
$
(75,325)
$
(44,892)
$
(17,979)
$
3,995
$
21,335
$
36,956

Computations 4.3 - Payback Reciprocals


IRR = 16.2%
short-lived reciprocal of PM (1/3.96) =
long-lived reciprocal of DPM (1/5.82) =

25%
17%

Computations 5.1
WACC =

11%

OUTFLOWS/COSTS
Year
Net Cash Flow
0 $
(212,500)

PVF
1.00 $

INFLOWS
Year
Net Cash Flow
1 $
53,000
2 $
63,200
3 $
52,150
4 $
46,200
5 $
45,350
6 $
41,100
7 $
36,000
8 $
36,000

FVF
2.08
1.87
1.69
1.52
1.37
1.23
1.11
1.00

$
$
$
$
$
$
$
$
$

PV
(212,500)

FV
110,036
118,210
87,876
70,135
62,022
50,639
39,960
36,000
574,879 (=terminal value)

PV of Outflows = PV of Terminal Value=TV/(1+MIRR)^8


MIRR =
13.25%

Table 6.1
Year
0
1
2
3
4
5
6
7
8

Cash Inflows
$
$
$
$
$
$
$
$

53,000
63,200
52,150
46,200
45,350
41,100
36,000
36,000

PVF
1.0000
0.9009
0.8116
0.7312
0.6587
0.5935
0.5346
0.4817
0.4339

PV of cash inflows

PV
$
$
$
$
$
$
$
$
$

47,748
51,295
38,132
30,433
26,913
21,974
17,340
15,621
$249,455

Computation 6.1
PI = NPV of Cash Inflows/NPV of Cash Outflows
= 249,455 / 212,500
= 1.17

Computation 8.1
ITC savings = Cost of asset * ITC rate
= $212,500 * 10%
= $21,500
Computation 8.2
New Depreciable Cost= 212500*(1-0.1)
= $
191,250
Table 8.1
Tax Savings Based on New Depreciable Cost
Year
Dep rate
Dep Expense
Tax Savings
0
1
2
3
4
5
6

0.20
0.32
0.19
0.12
0.11
0.06
1.00

$
$
$
$
$
$
$

38,250
61,200
36,338
22,950
21,038
11,475
191,250

$
$
$
$
$
$
$

15,300
24,480
14,535
9,180
8,415
4,590
76,500

Table 8.2
NPV Based on New Depreciable Cost
After-tax
Savings
_________
0
1
2
3
4
5
6
7
8

$
$
$
$
$
$
$
$

36,000
36,000
36,000
36,000
36,000
36,000
36,000
36,000

Depreciation
Tax Savings
____________
$
$
$
$
$
$
$
$

15,300
24,480
14,535
9,180
8,415
4,590
-

Operating
Cash Flow
_________
$
51,300
$
60,480
$
50,535
$
45,180
$
44,415
$
40,590
$
36,000
$
36,000
NPVnew =
NPVold =

PV at t=0
$ (191,250)
$
46,216
$
49,087
$
36,951
$
29,761
$
26,358
$
21,701
$
17,340
$
15,621
$
51,786
$ (36,955)
$
14,831

Graph 9.1 NPV Profile


180000
160000

140000
120000

Net Present Value

100000
80000
60000
40000

20000
0
0

10

-20000
-40000
Cost of Capital

12

14

16

18

20

Table 10.1
NPV of Short-term Project
rate
11.00%

Table 10.2
IRR of Short-term Project
IRR

Year
Net CF
0 $ (120,000)
1 $ 150,000
NPV

Year

PV at t=0
$
(120,000)
$
135,135
$
15,135

Table 10.3
NPV of short-term and default project with varying rates
rate
short-term
default
0%
30,000.00
$160,500.00
1%
28,514.85
$145,633.80
2%
27,058.82
$131,666.76
3%
25,631.07
$118,531.05
4%
24,230.77
$106,164.81
5%
22,857.14
$94,511.55
6%
21,509.43
$83,519.59
7%
20,186.92
$73,141.64
8%
18,888.89
$63,334.37
9%
17,614.68
$54,058.04
10%
16,363.64
$45,276.13
11%
15,135.14
$36,955.10
12%
13,928.57
$29,064.07
13%
12,743.36
$21,574.61
14%
11,578.95
$14,460.49
15%
10,434.78
$7,697.53
16%
9,310.34
$1,263.38
17%
8,205.13
($4,862.64)
18%
7,118.64
19%
6,050.42
20%
5,000.00
21%
3,966.94
22%
2,950.82
23%
1,951.22
24%
967.74
25%
Computation 10.1
Crossover pt short-term
default
14.506%
10,997.81

$10,997.81

Net CF
0 $ (120,000)
1 $ 150,000
NPV

25.00%
PV at t=0
$ (120,000)
$ 120,000
$
0

Graph 10.1 NPV Profile


180,000.00

160,000.00

140,000.00

Net Present Value

120,000.00

100,000.00
short-term

80,000.00

default

60,000.00

40,000.00

20,000.00

0%

5%

10%

15%

(20,000.00)
Cost of Capital

20%

25%

30%

Table 1
Project Net Cash Flows
Year
0
1
2
3
4
5
6
7
8

NPV
-55675
-24798
6078
36955
67832
98709

Computations 11.1
Table 1
Project Net Cash Flows

0
1
2
3
4
5
6
7
8
Year
0
1
2
3
4
5
6
7
8

26562.5
15937.5

Net Cost
Dep Tax Savings After-Tax Cost Savings Net Cash Flow
-212500
-212500
17000
15937.5
32937.5
27200
15937.5
43137.5
16150
15937.5
32087.5
10200
15937.5
26137.5
9350
15937.5
25287.5
5100
15937.5
21037.5
0
15937.5
15937.5
0
15937.5
15937.5
0

Table 11.1
Savings
30000
40000
50000
60000
70000
80000

Year

Savings
After Tax Savings

IRR

MIRR
2.00%
7.20%
11.90%
16.20%
20.20%
24.10%

Payback
9.30%
11.40%
13.20%
14.90%
16.40%

Savings
After Tax Savings

0.0543
0.0456
0.0396
0.035
0.0314

PI
0.88
1.03
1.17
1.32
1.46

48031.41007
28818.84604

Net Cost
Dep Tax Savings After-Tax Cost Savings Net Cash Flow
-212500
-212500
17000
28818.84604
45818.84604
27200
28818.84604
56018.84604
16150
28818.84604
44968.84604
10200
28818.84604
39018.84604
9350
28818.84604
38168.84604
5100
28818.84604
33918.84604
0
28818.84604
28818.84604
0
28818.84604
28818.84604
Cash Flow
-212500
45818.84604
56018.84604
44968.84604
39018.84604
38168.84604
33918.84604
28818.84604
28818.84604

Table 11.2
Cost of capital NPV

PVF

PV
-212500
41278.23968
45466.15213
32880.83266
25702.92247
22651.35238
18134.40021
13880.83959
12505.26089
0

0.900900901
0.811622433
0.731191381
0.658730974
0.593451328
0.534640836
0.481658411
0.433926496

IRR

MIRR

Payback

PI

8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%

63334
54058
45276
35955
29064
21575
14460
7698
1263
-4863
-10700

Table 11.3
Tax Rate
NPV
20%
30%
40%
50%
60%

IRR
98709
67832
36955
6078
-24798

Computations 11.2
Table 1
Project Net Cash Flows

Year

16.20%
16.20%
16.20%
16.20%
16.20%
16.20%
16.20%
16.20%
16.20%
16.20%
16.20%

0.116
0.121
0.127
13.20%
13.80%
14.40%
14.90%
15.50%
16.10%
16.70%
17.20%

MIRR
0.197
0.18
0.162
0.143
0.121

Savings
After Tax Savings
Tax Rate

3.96
3.96
3.96
3.96
3.96
3.96
3.96
3.96
3.96
3.96
3.96

1.3
1.25
1.21
1.17
1.14
1.1
1.07
1.04
1.01
0.98
0.95

3.72
3.83
3.96
4.1
4.28

PI
1.31
1.24
1.17
1.1
1.03

Payback
0.148
0.141
0.132
0.124
0.115

60000
28818.84604
0.62

0
1
2
3
4
5
6
7
8

Net Cost
Dep Tax Savings After-Tax Cost Savings Net Cash Flow
-212500
-212500
17000
28818.84604
45818.84604
27200
28818.84604
56018.84604
16150
28818.84604
44968.84604
10200
28818.84604
39018.84604
9350
28818.84604
38168.84604
5100
28818.84604
33918.84604
0
28818.84604
28818.84604
0
28818.84604
28818.84604

0
1
2
3
4
5
6
7
8

Cost of Cap
0.11
Cash Flow
PVF
PV
-212500
45818.84604
0.900900901
56018.84604
0.811622433
44968.84604
0.731191381
39018.84604
0.658730974
38168.84604
0.593451328
33918.84604
0.534640836
28818.84604
0.481658411
28818.84604
0.433926496

Year

-212500
41278.23968
45466.15213
32880.83266
25702.92247
22651.35238
18134.40021
13880.83959
12505.26089
0

Table 12.1
WACC =
Year

11%

Net Cash Flow


PVF
PV
0 $
(30,000)
1 $ (30,000)
1 $
150,000 0.900901 $ 135,135
2 $
(120,000) 0.811622 $ (97,395)
NPV =
$ 7,740
IRR =

MIRR =

0.00%
300.00%
14.32%

Graph 12.1 - NPV Profile


20000

15000

Net Present Value

10000

5000

0
0

0.5

1.5

2.5

-5000

-10000
Cost of Capital

3.5

4.5