Beta Company

Risk-Free Rate
Equity Risk Premium
CAPM

1.25
5.30%
6.00%
12.80%

Debt to Equity Ratio

Cost of Equity (CAPM)
Cost of Debt
Tax Rate
WACC

0.50
12.80%
6.80%
43%
9.86%

The New Machine Cash Flows

Year
Beginning
-
Labor Cost
Electrical Power Cost
Contract Maintenance
Saving from Labor Cost
Depreciation
Earnings from New Machine

Tax Savings on Loss of Old Machine

EBIT
-
Tax
NI
-
Depreciation
NCF
-
NPV of Cash Flows
-

0
1,010,000.00

1
-
-
-

130,000.00
66,703.75
813,296.25 -
-
813,296.25 -

813,296.25 -
807,340.23

38,169.60
26,850.00
59,500.00
5,200.00
126,250.00

245,569.60
105,594.93
139,974.67
126,250.00
13,724.67

2
-
-
-

-
-
-

38,169.60 -
26,850.00
59,500.00
5,200.00
126,250.00 -

245,569.60
105,594.93
139,974.67
126,250.00
13,724.67

-
-
-

38,169.60 -
### -
### -
###
126,250.00 -

245,569.60
105,594.93
139,974.67
126,250.00
13,724.67

-
-
-

38,169.60 -
26,850.00
59,500.00
5,200.00
126,250.00 -

245,569.60
105,594.93
139,974.67
126,250.00
13,724.67

-
-
-

38,169.60
###
###
5,200.00
126,250.00

245,569.60
105,594.93
139,974.67
126,250.00
13,724.67

-
-
-

38,169.60
26,850.00
59,500.00
5,200.00
126,250.00

-
-
-

38,169.60
26,850.00
59,500.00
5,200.00
126,250.00

-
-
-

38,169.60
26,850.00
59,500.00
5,200.00
126,250.00

-
-
-

245,569.60
105,594.93
139,974.67
126,250.00
13,724.67

-
-
-

245,569.60
105,594.93
139,974.67
126,250.00
13,724.67

-
-
-

245,569.60
105,594.93
139,974.67
126,250.00
13,724.67

Tax Savings on Loss of Old machine

Annual Depreciation
Corporate Tax Rate
WACC

66,703.75
126,250.00
43%
9.86%

The Old Machine Cash Flows

Year

Beginning
Machine Operators
Maintenance Workers
Total Labor Costs

Maintenance Supplies
Electrical Power
Depreciation
EBIT

Tax
NI

Depreciation
NCF
NPV

###

- 295,545.60 -
-
39,564.00 -
### -
-
4,000.00 -
-
12,300.00 -
-
47,520.00 -
### -
- 171,539.73 -
### -

47,520.00
### -

295,545.60
39,564.00
335,109.60

4,000.00
12,300.00
47,520.00
398,929.60
171,539.73
227,389.87
47,520.00
179,869.87

- 295,545.60 - 295,545.60 - 295,545.60

-
39,564.00 -
39,564.00 -
39,564.00
###
###
###
-
4,000.00 -
4,000.00 -
4,000.00
-
12,300.00 -
12,300.00 -
12,300.00
-
47,520.00 -
47,520.00 -
47,520.00
###
###
###
- 171,539.73 - 171,539.73 - 171,539.73
###
###
###

47,520.00
47,520.00
47,520.00
###
###
###

- 295,545.60
-
39,564.00
###
-
4,000.00
-
12,300.00
-
47,520.00
###
- 171,539.73
###

47,520.00
###

Annual Depriciation

Corporate Tax Rate

WACC

47,520.00
43.00%
9.86%

The New Machine Cash Flows with 3% Inflation

Year
Inflation
Beginning
Labor Cost
Electrical Power Cost
Contract Maintenance
Saving from Labor Cost
Depreciation
Earnings from New Machine
Tax Savings on Loss of Old Machine
EBIT
Tax
NI
Depreciation
NCF
NPV of Cash Flows

0
-

1,010,000.00

130,000.00
66,703.75
813,296.25

813,296.25

813,296.25

849,976.71

1
1.03

2
1.0609

3
1.092727

4
1.12550881

-
-
-

39,314.69
27,655.50
61,285.00
5,356.00
126,250.00

-
-
-

40,494.13
28,485.17
63,123.55
5,516.68
126,250.00

-
-
-

41,708.95
29,339.72
65,017.26
5,682.18
126,250.00

-
-
-

42,960.22
30,219.91
66,967.77
5,852.65
126,250.00

-
-
-

249,149.19
107,134.15
142,015.04
126,250.00
15,765.04

-
-
-

252,836.16
108,719.55
144,116.61
126,250.00
17,866.61

-
-
-

256,633.75
110,352.51
146,281.24
126,250.00
20,031.24

-
-
-

260,545.26
112,034.46
148,510.80
126,250.00
22,260.80

5
1.1592740743

6
1.1940522965

7
1.2298738654

8
1.2667700814

-
-
-

44,249.03
31,126.51
68,976.81
6,028.23
126,250.00

-
-
-

45,576.50
32,060.30
71,046.11
6,209.07
126,250.00

-
-
-

46,943.79
33,022.11
73,177.49
6,395.34
126,250.00

-
-
-

48,352.11
34,012.78
75,372.82
6,587.20
126,250.00

-
-
-

264,574.12
113,766.87
150,807.25
126,250.00
24,557.25

-
-
-

268,723.84
115,551.25
153,172.59
126,250.00
26,922.59

-
-
-

272,998.06
117,389.16
155,608.89
126,250.00
29,358.89

-
-
-

277,400.50
119,282.21
158,118.28
126,250.00
31,868.28

Tax Savings on Loss of Old machine

Annual Depreciation
Corporate Tax Rate
WACC

66,703.75
126,250.00
43%
10%

The OLd Machine Cash Flows with 3% Inflation

Year
Inflation

Beginning
Machine Operators
Maintenance Workers
Total Labor Costs

Maintenance Supplies
Electrical Power
Depreciation
EBIT

Tax
NI

Depreciation
NCF
NPV

1
1.03

2
1.0609

- 304,412
- 40,751
- 345,163
- 4,120
- 12,669
- 47,520
- 409,472
- 176,073
- 233,399
47,520
0 - 185,879
- 797,071

- 313,544
- 41,973
- 355,518

- 4,244
- 13,049
- 47,520
- 420,330
- 180,742
- 239,588
47,520
- 192,068

3
1.092727

- 322,951
- 43,233
- 366,183
- 4,371
- 13,441
- 47,520
- 431,515
- 185,551
- 245,963
47,520
- 198,443

4
5
6
1.12550881 1.159274074 1.194052297

- 332,639
- 44,530
- 377,169
- 4,502
- 13,844
- 47,520
- 443,035
- 190,505
- 252,530
47,520
- 205,010

- 342,618
- 45,866
- 388,484
- 4,637
- 14,259
- 47,520
- 454,900
- 195,607
- 259,293
47,520
- 211,773

- 352,897
- 47,241
- 400,138
- 4,776
- 14,687
- 47,520
- 467,121
- 200,862
- 266,259
47,520
- 218,739

Annual Depriciation

Corporate Tax Rate

WACC

47,520
43%
9.86%