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Use the model you created in Activity 6.3 (This activity added
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Use the model you created in Activity 6.3 (This activity added taxes and depreciation to your model from Activity 3.3) to address the following:


Your company may buy a used pick-up for $20,000. During the truck's five year useful life, it is estimated the firm will save $4,000 per year after all of the costs of owning and operating the truck have been paid. The truck's salvage value is estimated to be $3,000. Assume straight line depreciation and a tax rate of 35%. Assume r of 10%.


Create a model that will calculate before-tax and after-tax cash flows.


Perform the same analysis on another tab of your spreadsheet using a tax rate of 39%.


Submit your file as your response to this question. Be sure to include all required elements and to submit your file with tabs for both 35 and 39 percent tax rates.

Attached is the activity that I was incorrect in making, following was instructor notes.

Incorrect answer -100,000 4090.77 37190.7 26293.95 30736.12 27941.93 28224.97 NPV = 91297.44


Year

 

0

 

1

 

2

 

3

 

4

 

5

 

6 Initial Cost

 

-$100,000 Annual Cash Flow

 

$30,000

 

$30,000

 

$30,000

 

$30,000

 

$30,000

 

$30,000 $100,000

 

$90,000

 

$80,000

 

Cash Flows (thousands)

 

$70,000

 

$60,000

 

$50,000

 

$40,000

 

$30,000

 

$20,000

 

$10,000

 

$0

 

-$10,000

 

-$20,000

 

-$30,000

 

-$40,000

 

-$50,000

 

-$60,000

 

-$70,000

 

-$80,000

 

-$90,000

 

-$100,000

 

0 1 2

 

Initial Cost Year 3 Overhaul 3

 

Annual Cash Flow 4

 

Year 6 Clean-up Cost Sal Year 3 Overhaul Year 6 Clean-up Cost Salvage Value -$15,000 $10,000 -$10,000 3

 

Annual Cash Flow 4

 

Year 6 Clean-up Cost 5

 

Salvage Value 6 Year

 

0

 

1

 

2

 

3

 

4

 

5

 

6 Initial Cost

 

-$100,000 Annual Cash FlowAnnual Cash Flow PWYear 3 Overhaul

 

$30,000

 

$30,000

 

$30,000

 

$30,000

 

$30,000

 

$30,000 $27,273

 

$24,793

 

$22,539

 

$20,490

 

$18,628

 

$16,934 -$10,000 $100,000

 

$90,000

 

$80,000

 

Cash Flows (thousands)

 

$70,000

 

$60,000

 

$50,000

 

$40,000

 

$30,000

 

$20,000

 

$10,000

 

$0

 

-$10,000

 

-$20,000

 

-$30,000

 

-$40,000

 

-$50,000

 

-$60,000

 

-$70,000

 

-$80,000

 

-$90,000

 

-$100,000

 

0 1 2

 

Initial Cost Year 3 Overhaul PW 3

 

Annual Cash Flow PW Year 6 Clean 2 rhaul PW Year 3 Overhaul PW Year 6 Clean-up Year 6 Clean-up PW Salvage Value Salvage Value PW -$7,513 -$15,000 3

 

Annual Cash Flow PW -$8,467 4

 

Year 6 Clean-up PW $10,000 5

 

Salvage Value PW $5,645 6 6 Rate

 

10%

 

10%

 

10%

 

10%

 

10%

 

10%

 

10% Initial Cost

 

$100,000

 

Annual Revenues

 

$81,155

 

Annual Costs (Excluding Depr $20,000

 

Year 3 Overhaul

 

$15,390

 

Year 6 Clean-up Costs

 

$17,690

 

Equipment Salvage/Book Val

 

$10,000

 

Useful Life

 

6 years

 

r (this was not provided in 2.

 

0.1

 

Tax Rate

 

0.35

 

Equipment Sold For

 

$20,000 Year

 

Initial Cost

 

Annual Revenue

 

Costs

 

Depreciation

 

Overhaul Cost

 

Clean­up cost

 

Before Tax Inflows

 

35% taxes

 

Sale value of assets

 

Add: Depreciation

 

After tax cash flow

 

Cost of capital @ 10%

 

PV of inflows

 

Net Present Value 0

 

$100,000 $100,000 $100,000

 

1.0000

 

$100,000 1

 

$0

 

$81,155

 

$20,000

 

$15,000

 

$0

 

$0

 

$46,155

 

$16,154

 

$0

 

$15,000

 

$45,001

 

1.1000

 

$49,501 2

 

$0

 

$81,155

 

$20,000

 

$15,000

 

$0

 

$0

 

$46,155

 

$16,154

 

$0

 

$15,000

 

$45,001

 

1.2100

 

$54,451 3

 

$0

 

$81,155

 

$20,000

 

$15,000

 

$15,390

 

$0

 

$61,545

 

$21,541

 

$0

 

$15,000

 

$55,004

 

1.3310

 

$73,211 4

 

$0

 

$81,155

 

$20,000

 

$15,000

 

$0

 

$0

 

$46,155

 

$16,154

 

$0

 

$15,000

 

$45,001

 

1.4641

 

$65,886 5

 

$0

 

$81,155

 

$20,000

 

$15,000

 

$0

 

$0

 

$46,155

 

$16,154

 

$0

 

$15,000

 

$45,001

 

1.6105

 

$72,474 6

 

$0

 

$81,155

 

$20,000

 

$15,000

 

$0

 

$17,690

 

$63,845

 

$22,346

 

$20,000

 

$15,000

 

$76,499

 

1.7716

 

$135,523

 

$351,045

 







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