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Finance

1. The document outlines the initial investment, operating cash flows, incremental cash flows, terminal value, and timeline for a new asset and an old asset. It includes calculations for revenues, expenses, depreciation, taxes, and cash flows. 2. It compares the operating cash flows of the new asset to the old asset to determine the incremental or relevant cash flows. 3. It also calculates the after tax proceeds from selling both the new and old assets at the end of their usable lives to determine the terminal values. 4. The cash flows are mapped out over an 8 year period to analyze the financial performance of the new asset versus continuing with the old asset.

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Jesus Javier Flores Rodriguez
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38 views

Finance

1. The document outlines the initial investment, operating cash flows, incremental cash flows, terminal value, and timeline for a new asset and an old asset. It includes calculations for revenues, expenses, depreciation, taxes, and cash flows. 2. It compares the operating cash flows of the new asset to the old asset to determine the incremental or relevant cash flows. 3. It also calculates the after tax proceeds from selling both the new and old assets at the end of their usable lives to determine the terminal values. 4. The cash flows are mapped out over an 8 year period to analyze the financial performance of the new asset versus continuing with the old asset.

Uploaded by

Jesus Javier Flores Rodriguez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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1.

INITIAL INVESTMENT
a) installed cost asset

b) after tax proceed on sale of old asset


proceed on sale of old asset
+/- tax on sale of old asset
> selling price
- book value
= LOSS on sale of fixed asset
*tax rate(34%)
= TAX REFUND
> book value
B.V. =
B.V. =
> accumulated depreciation
A.D.=
A.D.=
C) Change in net working capital
change incurrent assets
C.C.A.=
C.C.A.=
change in liabilities
2 .- OPERATING CASH INFLOWS
Operating cash inflow
* NEW ASSET
Revenue
( - ) expenses (NID&I)
=EBDIT
( - ) Depreciation
= EBIT
( - )Taxes (34%)
=NOPAT
(+) Depreciation
= Opearting Cash Flow
Depreciation New Asset

Operating cash inflow


OLD ASSET
Revenue
( - ) expenses (NID&I)
=EBDIT
( - ) Depreciation
= EBIT
( - )Taxes (34%)
=NOPAT
(+) Depreciation
= Opearting Cash Flow
Depreciation New Asset

2. A. INCREMENTAL (RELEVANT) CASH FLOWS


A) Operating Cash Flows
NEW ASSET
- B ) Operating Cash Flows
OLD ASSET
=
Relevant Cash Flows
3. TERMINAL VALUE

(+/-)
=
A)

After Tax Proceeds from Sales of New Asset

+/-

Proceed on sale of New asset


Tax on sale of New asset
> Selling Price
- book value
= Gain on sale of fixed asset
*tax rate(34%)
= Tax payable
> Book Value
B.V. =
B.V. =
> Accumulated Depreciation
A.D.=
A.D.=

B)
After Tax Proceeds from Sales of Old Asset

+/-

Proceed on sale of Old asset


Tax on sale of Old asset
> Selling Price
- book value
= GAIN on sale of fixed asset
*tax rate(34%)
= Tax PAYABLE
> Book Value
B.V. =
B.V. =
> Accumulated Depreciation
A.D.=
A.D.=

C)
Change in Networking Capital
Change in Current Assets
C.C.A.=
C.C.A.=

change in liabilities
4. TIME LINE

5
OLD ASSET

Initial Inv. =
cost of asset
installation cost

$1,000,000
$35,000

($135,000 - $1,500)

$1,035,000

$133,500
(+) $17, 000 ( $ 150, 500)
$135,000
($ 185 ,000 )
( $ 50, 000 )
* .34
( $ 17, 000 )

cost of asset - accumulated depreciation


$500,000 - $315,000
$185,000
cost of asset * accumulated depreciation
$500,000 * (63%)
$315,000

($25,000 + $12,000)
$37,000
( $21, 000 )

$16,000

YEAR 1
YEAR 2
YEAR 3
$ 66, 000 $ 834, 000 $ 1, 045, 000
( $ 222, 600 )( $ 318, 750 ) ( $ 430, 500 )
( $ 156, 000 ) $ 515, 250
$ 614, 500
( $ 144, 900 )( $ 258, 750 ) ( $186, 300 )
( $ 300, 900 ) $ 256, 500
$ 428, 200
( $ 102, 306 ) ( $ 87, 210 ) ( $ 145, 588 )
( $ 403, 206 )
$169,290
$ 282, 612
+ $ 144, 900 + $258, 750 + $186, 300
( $ 258, 306 ) $ 428, 040
$ 468, 912
MACRS 7 YEARS
YEAR

%
1
2

14%
25%

X
X

3
4
5
6
7
8

18%
12%
9%
9%
9%
4%

X
X
X
X
X
X

YEAR 1
YEAR 2
YEAR 3
$ 385, 000 $ 415, 000
$ 515, 000
( $ 97, 150 )( $ 132, 150 ) ( $ 137, 150 )
$ 287, 850 $ 282, 850
$ 377, 850
( $ 40, 000 ) ( $ 35, 000 )
( $ 30, 000 )
$ 247, 850 $ 247, 850
$ 347, 850
( $ 84, 269 ) ( $84, 269 ) ( $ 118, 269 )
$ 163, 581 $ 163, 581
$ 229, 581
+ $ 40, 000 + $ 35, 000
+ $ 30, 000
$ 203, 581 $ 198, 581
$ 259, 581
MACRS 10 YEARS
YEAR

%
(6)
(7)
(8)
(9)
(10)
(11)

1
2
3
4
5
6

8%
7%
6%
6%
6%
4%

X
X
X
X
X
X

SH FLOWS
YEAR 1
( $ 258, 306 )

YEAR 2
$ 428, 040

YEAR 3
$ 468, 912

( $ 203, 581 )( $ 198, 581 ) ( $ 259, 581 )


( $ 461, 887 )

C)

A) After Tax Proceeds from Sales of New Asset


B) After Tax Proceeds from Sales of Old Asset
Change in Networking Capital
TERMINAL VALUE

$ 229, 459

=
=
=
=

$ 209, 331

$ 64, 776
( $ 14, 520 )
+ 16, 000
$ 66, 256

$ 64, 776
( $ 80, 000 - $ 2, 100 )

$ 77, 900
( $ 13, 124 )
$ 64, 776
$ 80, 000
( $41, 400 )
$ 38, 600
*
.34
$ 13, 124

Cost of Asset - Accumulated Depreciation


$ 1, 035, 000 - $ 993, 600
$ 41, 400
Cost of Asset * Accumulated Depreciation
$ 1, 035, 000 * (96%)
$ 993, 600

$ 14, 520
$ 22, 000
( $ 7, 480 )
$14,520
$ 22, 000
$0
$ 22, 000
*
.34
$ 7, 480
Cost of Asset - Accumulated Depreciation
$ 22, 000 - $0
$ 22, 000
Cost of Asset * Accumulated Depreciation
$22, 000 * ( 100%)
$0

$16,000
($25,000 + $12,000)
$37,000

( $21, 000 )

$16,000

START OF THE PROJECT

0
BUY
OF
NEW
ASSET

$ 900, 500

YEAR 4
YEAR 5
YEAR 6
YEAR 7
YEAR 8
$ 1, 121, 000 $1, 121, 000$ 1, 065, 000 $ 825, 000
0
( $ 536, 600 )( $ 579, 550 )( $ 540, 850 ) $ 405, 850 )
0
$ 584, 400 $ 541, 450 $ 524, 150 $ 419, 150
0
( $124, 200 ) ( $ 93, 150 ) ( $93, 150 ) ( $ 93, 150 ) ( $ 41, 400 )
$ 460, 200 $ 448, 300 $ 431, 000 $ 326, 000 ( $ 41, 400 )
( $ 156, 468 )( $ 152, 422 )( $146, 540 )$ 110, 840 ) + $ 14, 076
$ 303, 732 $ 295, 878 $ 284, 460 $ 215, 160 ( $27, 324 )
+ $124, 200 + $ 93, 150 + $93, 150 + $ 93, 150 + $41, 400
$ 427, 932 $ 389, 028 $ 377, 610 $308, 130
$ 14, 076

Cost of Asset
$ 1,035, 000
$ 1,035, 000

Depreciation Expense
$ 144, 900
$258, 750

$
$
$
$
$
$

1,035,
1,035,
1,035,
1,035,
1,035,
1,035,

000
000
000
000
000
000

$186, 300
$124, 200
$93, 150
$93, 150
$93, 150
$41, 400

YEAR 4
YEAR 5
$ 515, 000 $ 315, 000
( $ 140, 000 ) ( $100, 000 )
$ 375, 000 $ 215, 000
( $ 30, 000 ) ( $ 30, 000 )
$ 345, 000 $ 185, 000
( $ 117, 300 ) ( $62, 900 )
$ 227, 700 $ 122, 100
+ $ 30, 000 + $ 30, 000
$ 257, 700 $ 152, 100

$0
$0
$0
( $ 20, 000 )
( $ 20, 000 )
+ 6, 800
( $13, 200 )
+ $ 20, 000
$ 6, 800

Cost of Asset
$ 500, 000
$ 500, 000
$ 500, 000
$ 500, 000
$ 500, 000
$ 500, 000

Depreciation Expense
$ 40, 000
$ 35, 000
$ 30, 000
$ 30, 000
$ 30, 000
$ 20, 000

YEAR 4
$ 427, 932

YEAR 5
$ 389, 028

( $ 257, 700 )( $ 152, 100 )


$ 169, 692

$ 236, 928

YEAR 6

YEAR 6
YEAR 7
$ 377, 610 $308, 130
( $ 6, 800 )

$0

$ 370, 810 $308, 130

YEAR 8
$ 14, 076
$0
$ 14, 076
$ 66, 256

7
SELL
OF
NEW
ASSET

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