【正文】 recovery of capital from sale of machine at the end of Year 5 is simply the book value of $288,000 (original cost less accumulated depreciation). 475 The old MRI equipment should be kept since it has a lower cost. 20–19 1. Old system (dollars in thousands): Year (1 – t)R (1 – t)C tNC Cash Flow df Present Value .....0 $ 0 $ 0 1–9 ... $18,000 $(13,440) $240 4,800 19,349 .. 10 18,000 (13,440) — 4,560 739 NPV .............................................................................................................. $ 20,088 New system (dollars in thousands): Year (1 – t)R (1 – t)Ca tNCb Otherc Cash Flow df Present Value ..... 0 $ 960 $(51,000)$(50,040) $(50,040) 1–10 .. $18,000 $(7,740) 2,160 — 12,420 52,065 NPV ................................................................................................................ $ 2,025 aDirect materials ( ? $80)........ $ 60 Direct labor ( ? $90) ................. 36 Volumerelated OH ($20 – $4) ..... 16 Direct FOH ($34 – $17).................. 17 Unit cost..................................... $129 Total cash expenses = $129 ? 100,000 = $12,900,000 Aftertax cash expenses = ? $12,900,000 = $7,740,000 bYear 0: Tax savings on loss from sale of old machine = ? $2,400,000 = $960,000。 $5,000,000 ? ? 。 $5,000,000 ? ? 。 Year 3: ? $400,000. The class life has two years remaining。 otherwise, it is possible to miss out on a very profitable investment. The exclusion of the environmental fine is especially puzzling—it is easily quantified, and certainly its avoidance is an important savings. The effect on sales may also be estimated—there is already some indication that the pany is assessing this oute. Similarly, it should not be especially hard to get some handle on the potential litigation costs. There should be ample cases. Annual cash flows increase by $90,000 (fines and sales effect) [., cash inflows increase to $226,800 in Year 1 ($136,800 + $90,000) and $238,800 for Years 2–7 ($148,800 + $90,000)]. Payback: $ 226,800 year 193,200 ($193,200/$238,800) $ 420,000 years The payback is reduced by years. NPV is increased by the following amount: Fines and sales effect ($90,000 ? ) ..... $434,970 Lawsuit avoidance ($200,000 ? )......... 128,200 ................................ Total increase in NPV $ 563,170 The effect of the omitted factors is greater than the included factors. While this may not be the normal state, it emphasizes the importance of including all related factors in the analysis. As mentioned, their exclusion may cause a pany to pass up a profitable investment opportunity. 20–15 1. Traditional equipment (18% rate): Year Cash Flow df Present Value .................. 0 $(1,000,000) $(1,000,000) .................. 1 600,000 508,200 .................. 2 400,000 287,200 467 ............3–10 200,000 585,600 NPV .............................................................................................. $ 381,000 468 20–15 Continued Contemporary technology: Year Cash Flow df Present Value .................. 0 $(4,000,000) $(4,000,000) .................. 1 200,000 169,400 .................. 2 400,000 287,200 .................. 3 600,000 365,400 .............. 4–6 800,000 1,058,400 .................. 7 1,000,000 314,000 8–10 ................ 2,000,000 1,364,000 NPV .............................................................................................. $ (441,600) 2. Traditional equipment (14% rate): Year Cash Flow df Present Value .................. 0 $(1,000,000) $(1,000,000) .................. 1 600,000 526,200 .................. 2 400,000 307,600 ............3–10 200,000 714,200 NPV .............................................................................................. $ 548,000 Contemporary technology: Year Cash Flow df Present Value .................. 0 $(4,000,000) $(4,000,000) .................. 1 200,000 175,400 .................. 2 400,000 307,600 .................. 3 600,000 405,000 469 .............. 4–6 800,000 1,253,600 .................. 7 1,000,000 400,000 8–10 ................ 2,000,000 1,858,000 NPV .............................................................................................. $ 399,600 3. The cost of capital is the rate that should be used—it usually reflects the opportunity cost of the funds needed to make the investment. A higher rate will bias against the acceptance of contemporary technology—which usually has large initial outlays and larger returns later in the life of the project. Notice how the use of the 14% rate moved the NPV of the contemporary technology alternative from a negative to a positive value. It’s enough of a movement that qualitative factors could now lead to the contemporary technology alternative being selected even though the other alternative still has a larger NPV. 470 20–15 Concluded 4. Traditional equipment: Year Cash Flow df Present Value .................. 0 $(1,000,000) $(1,000,000) .................. 1 600,000 526,200 .................. 2 400,000 307,600 ............3–10 100,000 357,100 NPV .............................................................................................. $ 190,900 The decision reverses。 thus, payback is years. Average cash flows = $1,610,000/10 = $161,000 (total cash flows = $87,500 + $122,500 + (8 ? $175,000) = $1,610,000) Average investment = $700,000/2 = $350,000 Annual depreciation = $700,000/10 = $70,000 ARR = ($161,000 – $70,000)/$