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7/31/2019 MK TASK 5
1/11
Managerial Finance II
PBL REPORT - TASK 5
Created by:Amelia Erfa (023100072)
Fauzan Adam (023100041)
Hilmy Arya (023100081)
Faculty of Economics
7/31/2019 MK TASK 5
2/11
Trisakti University
2011
Determining Relevant Cash Flow for Kefamanus
Company, Replacing an Existing Automatic Washing
Machine with One of Two Newer
Step 1
Kind of task : Problem task
Step 2
Main problem:
Which alternative appears to be better that replacing an existing
automatic washing machine with one of two newer-Toshiba or Panasonic for
Kefamanus Company?
Step 3
Kind of method: Topical Question List
Step 4
Analyze the problems:
Calculate the initial investment associated with a proposed automatic
washing machine (Toshiba and Panasonic).
Calculate the depreciation expense for proposed and present machine.
Find the relevant operating cash inflows for New Toshiba and
Panasonic automatic washing machin as a proposed and the existing
machine.
Determine the terminal cash flow for two newer automatic washing
machines.
Summarize the relevant cash flows
Determine which alternative machine to be more efficient for
Kefamanus Company
Step 5
Learning objectives:
Able to discuss the relevant cash flows
Able to calculate the initial investment associated with a proposed
capital expenditure.
Able to find the relevant operating cash inflows associated with a
proposed capital expenditure.
7/31/2019 MK TASK 5
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7/31/2019 MK TASK 5
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Total installed cost-proposed $185,000
- After-tax proceeds from sale of present machine=
Proceeds from sale of present machine $125,000
-Tax on sale of present machine (32,600)
Total after-tax proceeds-present (92,400)+Change in net working capital 10,000
Initial investment $102,600
II.Finding Operating Cash Inflows
Operating cash inflows is the incremental after-tax cash inflows resulting
from implementation of a project during its life.
a. Calculation of Depreciation Expense of Kefamanus Company
Year Cost Applicable MACRS
depreciation
percentage
Depreciation
With proposed machine
1 $185,000 20% $ 37,0002 185,000 32 59,2003 185,000 19 35,1504 185,000 12 22,2005 185,000 12 22,2006 185,000 5 9,200
Totals 100% $185,000
With present machine
1 $150,000 12% (year-4depreciation)
$ 18,000
2 150,000 12 (year-5
depreciation)
18,000
3 150,000 5 (year-6
depreciation)
7,500
Totals $ 43,500
b.Calculation of Operating Cash Inflows for Kefamanus Company
Year1 2 3 4 5 6
With proposed machine
Earnings before depre., int.,
and taxes
- Depreciation
Earnings before int. and taxes
-Taxes (T= 40%)
Net operating profit after taxes
+ Depreciation
Operating cash inflows
$ 75,000
37,000
$ 38,000
$ 75,000 $75,00
0
$75,00
0
$75,00
0
$ 0
59,200 35,15
0
22,20
0
22,20
0
9,25
0$ 15,800 $39,85
0
$52,80
0
$52,80
0
($9,25
0)15,200 6,320 15,94
0
21,12
0
21,12
0
(3,70
0)$ 22,800 $ 9,480 $23,91 $31,68 $31,68 ($5,55
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0 0 0 0)37,000 59,20
0
35,15
0
22,20
0
22,20
0
9,250
$ 59,800 $
68,680
$59,0
60
$53,8
80
$53,8
80
$3,70
0
With present machine
Earnings before depre., int.,
and taxes
- Depreciation
Earnings before int. and taxes
-Taxes (T= 40%)
Net operating profit after taxes
+ Depreciation
Operating cash inflows
$54,000
18,000
$36,000
$46,000 $45,00
0
$38,00
0
$35,00
0
$ 0
18,0 00 7,50
0
0 0
0
$28,000 $37,50
0
$38,00
0
$35,00
0
$ 0
14,4 00 11,20 0 15,00
0
15,20
0
14,00
0
0
$21,60
0
$16,800 $22,50
0
$22,80
0
$21,00
0
$ 0
18,000 18,0 00 7,50
0
0
0
0
$39,6 00 $34,80
0
$30,0
00
$22,8
00
$21,0
00
$ 0
c. Incremental (Relevant) Operating Cash Inflows for Kefamanus
Company
Operating Cash InflowsYear Proposed
machine
Present
machine
Incremental
(Relevant)1 $ 59,800 $ 39,600 $ 20,2002 68,680 34,800 33,8803 59,060 30,000 29,0604 53,880 22,800 31,0805 53,880 21,000 32,8806 3,700 0 3,700
III. Finding Terminal Cash Flow
Terminal cash flow is the after-tax non operating cash flow occuring in
the final year ofa project and it is usually attributable to liquidation of the
project.
a. Proposed machine
Book value = Installed cost Accumulated depreciation
= $185,0000 { (20% + 32% + 19% +12% + 12%) x
$185,000}
= $9,250
Gain on sale = Sale price Book value
= $50,000 - $9,250= $40,750
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Taxes on sale (Tax rate = 40%)
Taxes = Tax rate x Gain on sale
= 40% x $40,750
= $16,300
b.Present machine
Book value = Installed cost Accumulated depreciation
= $ 0
Because there is no depreciation at the end of 5 years (year-6
depreciation)
Gain on sale = Sale price Book value
= $10,000 - $0
= $10,000
Taxes on sale (Tax rate = 40%)
Taxes = Tax rate x Gain on sale
= 40% x $10,000
= $4,000
c. Terminal Cash Flow for Kefamanus Company
After-tax proceeds from sale of proposed machine =
Proceeds from sale of proposed machine $50,000-Tax on sale of proposed machine 16,300
Total after-tax proceeds-proposed $33,700
- After-taxk proceeds from sale of present machine = $10,000
Proceeds from sale of present machine 4,000
- Tax on sale of present machine
Total after-tax proceeds-present (6,000)
+Change in net working capital 10,000
Terminal cash flow $37,700
IV. Summary of Cash Flows
End of Year Cash Flow
0 -$102,6001 + 20,2002 + 33,8803 + 29,060
4 + 31,0805 + 70,580
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Totals $ 82,120
$32,880 OperatingCash Inflow
$37,700 Terminal
Cash Flow
$20,200 $33,880 $29,060 $31,080 $70,580 Total Cash
Flow
1 2 3 4 5
$102,600
B.New Panasonic and Existing Automatic Washing Machine
New Panasonic Automatic Washing Machine (Proposed)o Cost to purchase = $ 185,000
o Installation cost = $ 10,000
o Increasing in net working capital = $ 12,500
o Net sales before taxes = $ 75,000
Existing Automatic Washing Machine (Present)
o Installed cost = $ 150,000
o Sale price = $ 125,000
o Net sales before taxes = $ 10,000o The machine is 3 years old, and
o Being depreciated under MACRS using a 5-year recovery period
I. Finding Initial Investment
The initial investment is the relevant cash outflow for a proposed project
at time zero.
a.Book value = Installed cost Accumulated depreciation
= $150,0000 { (20% + 32% + 19%) x $150,000}= $43,500
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b.Taxes on sale of present machine (Tax rate = 40%)
Gain on sale = Sale price Book value
= $125,000 - $43,500
= $81,500
Taxes = Tax rate x Gain on sale
= 40% x $81,500
= $32,600
c. Initial investment for Kefamanus Company
Installed cost of proposed machine=
Cost of proposed machine $185,000
+ Installation cost 10,000
Total installed cost-proposed $195,000
- After-tax proceeds from sale of present machine=Proceeds from sale of present machine $125,000
-Tax on sale of present machine (32,600)
Total after-tax proceeds-present (92,400)
+Change in net working capital 12,500
Initial investment $115,100
II.Finding Operating Cash Inflows
Operating cash inflows is the incremental after-tax cash inflows resulting
from implementation of a project during its life.a.Calculation of Depreciation Expense of Kefamanus Company
Year Cost Applicable MACRS
depreciation
percentage
Depreciation
With proposed machine
1 $195,000 20% $ 39,0002 195,000 32 62,4003 195,000 19 37,050
4 195,000 12 23,4005 195,000 12 23,4006 195,000 5 9,750
Totals 100% $195,000
With present machine
1 $150,000 12% (year-4
depreciation)
$ 18,000
2 150,000 12 (year-5
depreciation)
18,000
3 150,000 5 (year-6
depreciation)
7,500
Totals $ 43,500
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b.Calculation of Operating Cash Inflows for Kefamanus Company
Year
1 2 3 4 5 6
With proposed machineEarnings before depre., int.,
and taxes
- Depreciation
Earnings before int. and taxes
-Taxes (T= 40%)
Net operating profit after taxes
+ Depreciation
Operating cash inflows
$ 86,000
39,000
$ 47,000
$ 78,000 $
68,000
$
60,000
$52,00
0
$ 0
62,400 37,050 23,4
00
23,40
0
9,750
$ 15,600 $
30,950
$
36,600
$28,60
0
($9,75
0)18,800 6,240 12,380 14,6
40
11,44
0
(3,90
0)$ 28,200 $ 9,360 $
18,570
$
21,960
$17,16
0
($5,85
0)39,000 62,40
0
37,050 23,4
00
23,40
0
9,750
$ 67,200 $
71,760
$
55,62
0
$
45,36
0
$40,5
60
$3,90
0
With present machine
Earnings before depre., int.,
and taxes
- DepreciationEarnings before int. and taxes
-Taxes (T= 40%)
Net operating profit after taxes
+ Depreciation
Operating cash inflows
$54,000
18,000
$36,000
$46,000 $45,00
0
$38,00
0
$35,00
0
$ 0
18,0 00 7,500 0 0 0
$28,000 $37,50
0
$38,00
0
$35,00
0
$ 0
14,4 00 11,20 0 15,00
0
15,20
0
14,00
0
0
$21,60
0
$16,800 $22,50
0
$22,80
0
$21,00
0
$ 0
18,000 18,0 00 7,50
0
0
0
0
$39,6 00 $34,800
$30,000
$22,800
$21,000
$ 0
c. Incremental (Relevant) Operating Cash Inflows for Kefamanus
Company
Operating Cash InflowsYear Proposed
machine
Present
machine
Incremental
(Relevant)1 $ 67,200 $ 39,600 $ 27,6002 71,760 34,800 36,960
3 55,620 30,000 25,6204 45,360 22,800 22,560
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5 40,560 21,000 19,5606 3,900 0 3,900
III. Finding Terminal Cash Flow
Terminal cash flow is the after-tax non operating cash flow occuring inthe final year ofa project and it is usually attributable to liquidation of the
project.
a. Proposed machine
Book value = Installed cost Accumulated depreciation
= $195,0000 { (20% + 32% + 19% +12% + 12%) x
$195,000}
= $9,750
Gain on sale = Sale price Book value
= $75,000 - $9,750
= $65,250
Taxes on sale (Tax rate = 40%)
Taxes = Tax rate x Gain on sale
= 40% x $65,250
= $26,100
b.Present machine
Book value = Installed cost Accumulated depreciation= $ 0
Because there is no depreciation at the end of 5 years (year-6
depreciation)
Gain on sale = Sale price Book value
= $10,000 - $0
= $10,000
Taxes on sale (Tax rate = 40%)
Taxes = Tax rate x Gain on sale= 40% x $10,000
= $4,000
c. Terminal Cash Flow for Kefamanus Company
After-tax proceeds from sale of proposed machine =
Proceeds from sale of proposed machine $75,000
-Tax on sale of proposed machine 26,100
Total after-tax proceeds-proposed $48,900
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- After-taxk proceeds from sale of present machine = $10,000
Proceeds from sale of present machine 4,000
- Tax on sale of present machine
Total after-tax proceeds-present (6,000)
+Change in net working capital 12,500Terminal cash flow $55,400
IV. Summary of Cash Flows
End of Year Cash Flow
0 -$115,1001 + 27,6002 + 36,9603 + 25,6204 + 22,5605 + 74,960
Totals $ 72,600
$19,560 Operating
Cash Inflow
$55,400 Terminal
Cash Flow
$27,600 $36,960 $25,620 $22,560 $74,960 Total CashFlow
1 2 3 4 5
$115,100