new 5-axis CNC machine can be bought for $2,000,000. The company is considering
ID: 2483399 • Letter: N
Question
new 5-axis CNC machine can be bought for $2,000,000. The company is considering 3 means of buying the machine, a cash purchase or two types of loans. 4 year loans are available at 5.7% interest.
One loan requires only interest payment for the first 3 years with the entire principal and the last year's interest at the end of year 4.
The other loan, also at 5.7% is based on a capital recovery with a return, an A/P relationship.
Operating and maintenance costs are estimated at $160,000 for the first year, increasing at 10% per year.
using the MACRS for 5 years to calculate depreciation, determine the equivalent annual cash cost to the company for a 6 year study period.
The company is progitable and pays an annual income tax rate of 45%. Use a MARR of 18%. Consider three cases, the cash purchase and each of the two loans described above. If the machine is sold exactly 3 years after its purchase for $900,000. What is the capital gaain or loss on the sale of the machine?
Having such a headache with this one a step by step would be ideal!
Explanation / Answer
Depreciation-Schedula Year BTCF Depreciation Taxable Income Tax @ 45% ATCF PVF @ 18% Present Value $ 2,000,000 20% $ 400,000 0 $ -2,000,000 $ - $ - $ - $ -2,000,000 1 $ -2,000,000 $ 2,000,000 32% $ 640,000 1 $ 160,000 $ 400,000 $ 560,000 $ 252,000 $ 92,000 0.847457627 $ 77,966 $ 2,000,000 19.20% $ 384,000 2 $ 176,000 $ 640,000 $ 816,000 $ 367,200 $ 191,200 0.71818443 $ 137,317 $ 2,000,000 11.52% $ 230,400 3 $ 193,600 $ 384,000 $ 577,600 $ 259,920 $ 66,320 0.608630873 $ 40,364 $ 2,000,000 11.52% $ 230,400 4 $ 212,960 $ 230,400 $ 443,360 $ 199,512 $ -13,448 0.515788875 $ -6,936 $ 2,000,000 5.76% $ 115,200 5 $ 234,256 $ 230,400 $ 464,656 $ 209,095 $ -25,161 0.437109216 $ -10,998 Loan 1 114000 Interest 6 $ 257,681.60 $ 115,200 $ 372,882 $ 167,797 $ -89,885 0.370431539 $ -33,296 2000000*5.7% Present Value $ -1,795,583 Loan-2 $ -573,223.14 PVAF @ 18% 3.4976 PMT(5.7%,4,2000000) EACC $ -513,375.79 Year BTCF Depreciation Taxable Income Tax @ 45% ATCF PVF @ 18% Present Value Book Value after 3 year 576000 0 $ - $ - $ - $ - $ - 1 $ - Sale Price 900000 1 $ 160,000 $ 400,000 $ 560,000 $ 252,000 $ -22,000 0.847457627 $ -18,644 Capital Gain 324000 2 $ 176,000 $ 640,000 $ 816,000 $ 367,200 $ 77,200 0.71818443 $ 55,444 Tax @ 45% 145800 3 $ 193,600 $ 384,000 $ 577,600 $ 259,920 $ -47,680 0.608630873 $ -29,020 Net Gain 178200 4 $ 212,960 $ 230,400 $ 443,360 $ 199,512 $ -2,127,448 0.515788875 $ -1,097,314 5 $ 234,256 $ 230,400 $ 464,656 $ 209,095 $ -25,161 0.437109216 $ -10,998 6 $ 257,681.60 $ 115,200 $ 372,882 $ 167,797 $ -89,885 0.370431539 $ -33,296 Present Value $ -1,133,828 PVAF @ 18% 3.4976 EACC $ -324,173.14 Year BTCF Depreciation Taxable Income Tax @ 45% ATCF PVF @ 18% Present Value 0 $ - $ - $ - $ - $ - 1 $ - 1 $ 160,000 $ 400,000 $ 560,000 $ 252,000 $ -481,223 0.847457627 $ -407,816 2 $ 176,000 $ 640,000 $ 816,000 $ 367,200 $ -382,023 0.71818443 $ -274,363 3 $ 193,600 $ 384,000 $ 577,600 $ 259,920 $ -506,903 0.608630873 $ -308,517 4 $ 212,960 $ 230,400 $ 443,360 $ 199,512 $ -586,671 0.515788875 $ -302,598 5 $ 234,256 $ 230,400 $ 464,656 $ 209,095 $ -25,161 0.437109216 $ -10,998 6 $ 257,681.60 $ 115,200 $ 372,882 $ 167,797 $ -89,885 0.370431539 $ -33,296 Present Value $ -1,337,589 PVAF @ 18% 3.4976 EACC $ -382,430.48