【正文】 ......... 2 (25,000) (20,650) .................... 3 (12,500) (9,388) .................... 4 212,500 145,138 .................... 5 275,000 170,775 .................... 6 337,500 190,350 NPV ................................................................................................. $ 129,637 20–16 Concluded 2. Proposal A payback period: First year .............................................. year $ 150,000 Second year ($100,000/$125,000) .. 200,000 years $ 350,000 Proposal B payback period: First year .............................................. year $ (37,500) Second year ........................................ (25,000) Third year ............................................. (12,500) Fourth year .......................................... 212,500 Fifth year ($175,000/$275,000) ........ 175,000 years $ 312,500 3. Based on the NPV analysis, both proposals could be accepted as they have positive NPVs. Proposal B, in fact, has the higher NPV. 4. Kent may have accepted only Proposal A because of the fact that his performance is going to be closely monitored over the next three years. Proposal B had negative cash flows projected for the first three years. This would hurt his 472 divisional profits during that time, and he may feel that this would hurt his chances for promotion to higher management. It is also possible that he was concerned about the effect the proposal would have on his bonus payments. Kent might have rejected Proposal B because of the longer payback period. He may have felt that this increased the risk associated with the project to an unacceptable level. It might also be possible that the firm has liquidity problems and needs projects with quick paybacks. The latter, however, is not likely given the fact that his division has had high performance ratings over the past three years. If Kent’s reasons for rejecting the proposal were based on his concerns about his promotion and bonuses rather than legitimate economic reasons, then his behavior is uhical. To consciously subvert the legitimate objectives of an anization for the pursuit of personal goals is not right. It might also be noted that perhaps the anization needs to reduce its emphasis on shortterm profit performance. 473 20–17 1. df = Investment/Annual cash flow = $750,000/$150,000 = The IRR is between 14% and 16% (approximately %). The pany should acquire the new IT system since the cost of capital is only 12%. 2. Since I = P for the IRR, the minimum cash flow is: I = df ? CF $750,000 = * ? CF ? CF = $750,000 CF = $132,743 *From Exhibit 20B2, discount factor at 12% (cost of capital) for 10 years. The safety margin is $17,257 ($150,000 – $132,743). This seems to suggest that there is not much room for error—as the savings are all tied to labor. 3. For a life of eight years: df = I/CF = $750,000/$150,000 = The IRR is between 10% and 12% (approximately %). The system is about at the breakeven point (point of indifference). Minimum cash flow at 12% for eight years: I = df ? CF $750,000 = ? CF ? CF = $750,000 CF = $150,966 The less sensitive the decision is to changes in estimates, the safer the decision. In this case, a 2year difference in project life moves the investment into a marginal zone. Thus, the pany may wish to examine carefully its assumptions concerning project life. 474 20–18 Keep old MRI equipment: Year (1 – t)Ra –(1 – t)Cb tNCc CF df Present Value 1 ....... — $(600,000) $320,000 $(280,000) $ (250,040) 2 ....... — (600,000) 320,000 (280,000) (223,160) 3 ....... — (600,000) 160,000 (440,000) (313,280) 4 ....... — (600,000) — (600,000) (381,600) 5 ....... $(60,000) (600,000) — (540,000) (306,180) NVP .............................................................................................................................. $(1,474,260) a ? $100,000. b() ? $1,000,000. cYears 1 and 2: ? $800,000。 thus, there are three years of depreciation to claim, with the last year being only half. Let X = Annual depreciation. Then X + X + X/2 = $2,000,000 and X = $800,000. Buy new MRI equipment: Yr. (1 – t)Ra –(1 – t)Cb tNCc Otherd CF df Pres. Value 0 .... — $600,000 $(4,500,000) $(3,900,000) $ (3,900,000) 1 .... — $(300,000) 400,000 — 100,000 89,300 2 .... — (300,000) 640,000 — 340,000 270,980 3 .... — (300,000) 384,000 — 84,000 59,808 4 .... — (300,000) 230,400 — (69,600) (44,266) 5 .... $427,200 (300,000) 230,400 288,000 645,600 366,055 NPV ........................................................................................................................... $ (3,158,123) a ? ($1,000,000 – Book value), where Book value = $5,000,000 – $4,712,000. b() ? $500,000. cYear 0: Tax savings from loss on sale of asset: ? $1,500,000 (The loss on the sale of the old puter is $2,000,000 – $500,000.) Years 1–5: Tax savings from MACRS depreciation: $5,000,000 ? ? 。 $5,000,000 ? ? 。 $5,000,000 ? ? . Note: The asset is disposed of at the end of the fifth year—the end of its class life—so the asset is held for its entire class life, and the full amount of depreciation can be claimed in Year 5. dPurchase cost ($5,000,000) less proceeds from sale of old puter ($500,000)。 Years 1–10: Depreciation = ? $54,000,000/10 = $2,160,000. cNet outlay = $54,000,000 – $3,000,000 = $51,000,000. The old system should be chosen because it has the higher NPV. 2. Old system (dollars in thousands): Year (1 – t)R (1 – t)C tNC CF df Present Value ...... 0 $ 0 $ 0 1–9 ..... $18,000 $(13,440) $