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    Chapter 8 Solutions Berk and Demerzo

    Uploaded by

    Kishan TC
    This document outlines the costs, revenues, depreciation, taxes, profits, and cash flows in evaluating replacing an old machine with a new one over 6 years. It calculates the net present value of replacing the machine is positive. The second outlines revenues, expenses,

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    © All Rights Reserved
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    Chapter 8 Solutions Berk and Demerzo

    Uploaded by

    Kishan TC
    32 views9 pages
    This document outlines the costs, revenues, depreciation, taxes, profits, and cash flows in evaluating replacing an old machine with a new one over 6 years. It calculates the net present value of replacing the machine is positive. The second outlines revenues, expenses,

    Original Description:

    Solutions to most important problems of chapter 8

    Original Title

    CHAPTER 8 SOLUTIONS BERK AND DEMERZO

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    © © All Rights Reserved

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    This document outlines the costs, revenues, depreciation, taxes, profits, and cash flows in evaluating replacing an old machine with a new one over 6 years. It calculates the net present value of replacing the machine is positive. The second outlines revenues, expenses,

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    32 views9 pages

    Chapter 8 Solutions Berk and Demerzo

    Uploaded by

    Kishan TC
    This document outlines the costs, revenues, depreciation, taxes, profits, and cash flows in evaluating replacing an old machine with a new one over 6 years. It calculates the net present value of replacing the machine is positive. The second outlines revenues, expenses,

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    You are on page 1of 9

    timeline YEAR 0 YEAR 1 YEAR 2

    SALES 9000 7000


    ADD ON SALES 2000 2000
    GROSS SALES 11000 9000
    GROSS MARGIN MINI MICHI 3150 2450
    GROSS MARGIN OTHERS 500 500
    TOTAL MARGIN 3650 2950
    ADVERTISING 5000
    EBIT -1350 2950
    TAXES AT 35% -472.5 1032.5
    EBIAT -877.5 1917.5
    A
    B
    C
    E
    F
    YEAR 1 2
    REVENUES 125 160
    COGS 40 60
    EBITDA 85 100
    DEPRECIATION 25 36
    EBIT 60 64
    TAXES 21 22.4
    EBIAT 39 41.6
    ADD: DEPRECIATION 25 36
    LESS: CAPITAL EXPENDITURES 30 40
    LESS: INCREMENTAL NET WORKING CAPITAL 5 8
    FREE CASH FLOW 29 29.6
    YEAR 0 1 2 3 4 5 6 7 8

    SALES 30000 30000 30000 30000 30000 30000 30000 30000


    COGS 18000 18000 18000 18000 18000 18000 18000 18000
    GROSS PROFIT 12000 12000 12000 12000 12000 12000 12000 12000
    GSA EXPENSES 1000 1000 1000 1000 1000 1000 1000 1000
    DEPRECIATION 2500 2500 2500 2500 2500 2500 2500 2500
    EBIT 8500 8500 8500 8500 8500 8500 8500 8500
    TAXES 2975 2975 2975 2975 2975 2975 2975 2975
    EBIAT 5525 5525 5525 5525 5525 5525 5525 5525
    DEPRECIATION 2500 2500 2500 2500 2500 2500 2500 2500
    OPERATING CASH FLOW 8025 8025 8025 8025 8025 8025 8025 8025
    CAPITAL EXPENDITURE -25000
    INCREEMNTAL NET WORKI -10000
    FREE CASH FLOW -35000 8025 8025 8025 8025 8025 8025 8025 8025
    NPV AT 14% $9,556.77
    9 10

    30000 30000
    18000 18000
    12000 12000
    1000 1000
    2500 2500
    8500 8500
    2975 2975
    5525 5525
    2500 2500
    8025 8025

    10000
    8025 18025
    YEAR 0 1 2 3 4 5 6

    COST OF NEW MACHINE -150000


    SALVAGE VALUE OF OLD MACHINE 50000
    TAX ON SALE OF OLD MACHINE 22500

    EBITDA FOR NEW MACHINE 40000 40000 40000 40000 40000 40000
    LOST EBITDA FROM OLD MACHINE 20000 20000 20000 20000 20000 20000
    DEPRECIATION ON NEW MACHINE 15000 15000 15000 15000 15000 15000
    DEPRECIATION LOST ON OLD MACHINE 10000 10000 10000 10000 10000 10000
    EBIT 15000 15000 15000 15000 15000 15000
    TAXES AT 45% 6750 6750 6750 6750 6750 6750
    EBIAT 8250 8250 8250 8250 8250 8250
    ADD: DEPRECIATION 5000 5000 5000 5000 5000 5000
    OPERATING CASH FLOW 13250 13250 13250 13250 13250 13250
    FREE CASH FLOW -77500 13250 13250 13250 13250 13250 13250
    NPV AT 10% $3,915.51
    REPLACE AS NPV >0
    7 8 9 10

    40000 40000 40000 40000


    20000 20000 20000 20000
    15000 15000 15000 15000
    10000 10000 10000 10000
    15000 15000 15000 15000
    6750 6750 6750 6750
    8250 8250 8250 8250
    5000 5000 5000 5000
    13250 13250 13250 13250
    13250 13250 13250 13250
    YEAR 0 1 2 3 4 5
    COST OF EQUIPMENT -1400
    SALVAGE VALUE OF EQUIPMENT
    TAX ON PROFIT ON SALE OF EQUIPMENT

    REVENUES 4800 4800 4800 4800 4800


    OPERATING EXPENSES 3840 3840 3840 3840 3840
    LOST RENTAL 120 120 120 120 120
    EBITDA 840 840 840 840 840
    DEPRECIATION 140 140 140 140 140
    EBIT 700 700 700 700 700
    TAXES AT 30% 210 210 210 210 210
    EBIAT 490 490 490 490 490
    ADD: DEPRECIATION 140 140 140 140 140
    OPERATING CASH FLOW 630 630 630 630 630
    INCREMENTAL NET WORKING CAPITAL -480
    FREE CASH FLOW -1880 630 630 630 630 630
    NPV AT 15% $1,245.80
    6 7 8

    500
    -66

    4800 4800 4800


    3840 3840 3840
    120 120 120
    840 840 840
    140 140 140
    700 700 700
    210 210 210
    490 490 490
    140 140 140
    630 630 630
    480
    630 630 1544

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