Years
cost of machin
7 Year MACRS rate
annual depreciation = cost of machine* MACRS rate
1
190000
0.143
27170
2
190000
0.245
46550
3
190000
0.175
33250
4
190000
0.125
23750
5
190000
0.089
16910
6
190000
0.089
16910
7
190000
0.089
16910
8
190000
0.045
8550
total
1
190000
Year
EBIT
less depreciation
EBT
less tax-30%
EAT
Add depreciation
EATBD
present value of EATBD = EATBD/1+r)^n r= 12%
1
58000
27170
30830
9249
21581
27170
48751
43527.68
2
58000
46550
11450
3435
8015
46550
54565
43498.88
3
58000
33250
24750
7425
17325
33250
50575
35998.29
4
29000
23750
5250
1575
3675
23750
27425
17429.08
5
29000
16910
12090
3627
8463
16910
25373
14397.32
6
29000
16910
12090
3627
8463
16910
25373
12854.75
7
29000
16910
12090
3627
8463
16910
25373
11477.46
8
29000
8550
20450
6135
14315
8550
22865
9234.79
9
29000
0
29000
8700
20300
0
20300
7320.384
10
29000
0
29000
8700
20300
0
20300
6536.057
sum of present value of EATBD
202274.7
less present value of cash outflow
190000
net present value
12274.69
Machine should be purchased as it results In positive NPV
Years
cost of machin
7 Year MACRS rate
annual depreciation = cost of machine* MACRS rate
1
190000
0.143
27170
2
190000
0.245
46550
3
190000
0.175
33250
4
190000
0.125
23750
5
190000
0.089
16910
6
190000
0.089
16910
7
190000
0.089
16910
8
190000
0.045
8550
total
1
190000
Year
EBIT
less depreciation
EBT
less tax-30%
EAT
Add depreciation
EATBD
present value of EATBD = EATBD/1+r)^n r= 12%
1
58000
27170
30830
9249
21581
27170
48751
43527.68
2
58000
46550
11450
3435
8015
46550
54565
43498.88
3
58000
33250
24750
7425
17325
33250
50575
35998.29
4
29000
23750
5250
1575
3675
23750
27425
17429.08
5
29000
16910
12090
3627
8463
16910
25373
14397.32
6
29000
16910
12090
3627
8463
16910
25373
12854.75
7
29000
16910
12090
3627
8463
16910
25373
11477.46
8
29000
8550
20450
6135
14315
8550
22865
9234.79
9
29000
0
29000
8700
20300
0
20300
7320.384
10
29000
0
29000
8700
20300
0
20300
6536.057
sum of present value of EATBD
202274.7
less present value of cash outflow
190000
net present value
12274.69
Machine should be purchased as it results In positive NPV
Solution
Years
cost of machin
7 Year MACRS rate
annual depreciation = cost of machine* MACRS rate
1
190000
0.143
27170
2
190000
0.245
46550
3
190000
0.175
33250
4
190000
0.125
23750
5
190000
0.089
16910
6
190000
0.089
16910
7
190000
0.089
16910
8
190000
0.045
8550
total
1
190000
Year
EBIT
less depreciation
EBT
less tax-30%
EAT
Add depreciation
EATBD
present value of EATBD = EATBD/1+r)^n r= 12%
1
58000
27170
30830
9249
21581
27170
48751
43527.68
2
58000
46550
11450
3435
8015
46550
54565
43498.88
3
58000
33250
24750
7425
17325
33250
50575
35998.29
4
29000
23750
5250
1575
3675
23750
27425
17429.08
5
29000
16910
12090
3627
8463
16910
25373
14397.32
6
29000
16910
12090
3627
8463
16910
25373
12854.75
7
29000
16910
12090
3627
8463
16910
25373
11477.46
8
29000
8550
20450
6135
14315
8550
22865
9234.79
9
29000
0
29000
8700
20300
0
20300
7320.384
10
29000
0
29000
8700
20300
0
20300
6536.057
sum.Read less