Carlisle company is in need of new production line equipment that will increase
ID: 2785102 • Letter: C
Question
Carlisle company is in need of new production line equipment that will increase the throughput and allow them to meet anticipated demand for the next 10 years. This equipment is the H5500 Robotics platform which has proven to be highly reliable when installed at the company’s other divisions. The shipping costs, sales tax, installation cost for the H5500 will be $120,000. The equipment itself will cost $380,000. The operating and maintenance costs for the equipment is anticipated to be $30,000 per year escalating at the rate of inflation of 3% per year. The company’s tax rate is 30%. If the annual receipts are as shown in the table below and using a straight-line depreciation what is the company’s anticipated before and after-tax profit per year. Note, the salvage value of the equipment is expected to be $50,000 at the end of the 10th year. If the company’s MARR is 15%, is this a viable project?
0
1. Given the Before Tax NCF, IRR=36%
2. Given the After Tax NCF,IRR=24%
3.Given the MARR=15%,this is an acceptable project since the company's after tax IRR is 24%
Repeat the above analysis using a SOYD Depreciation method and the additional information provided on the next page.
Data:
The Carlisle company in addition to the previous information supplied has applied for and received a tax credit of $15,000 for year 1. It is expected to be the same for each of the remaining 9 years. Note: you will need to research what a tax credit is and how it is used.
Questions to Answer:
If the Carlisle Company used a SOYD Depreciation method, please answer the following:
Before Tax Net Cash Flow?
After Tax Net Cash Flow?
After Tax Rate of Return?
Discuss these results and compare to the previous analysis:
What is different?
Which is better for the company to use, Straight Line or SOYD depreciation?
What ramifications do depreciation and tax credits have on the IRR?
Turn in one Excel file and embed the questions (A-D) in the spreadsheet and clearly state the solutions for each question. Discuss the results of your analysis and what they mean, be sure to show tables with summary information. You will be graded on formatting and appearance, it needs to look professional. Design how the problem solutions will be designed/look prior to starting the problem. Use the power of Excel!!!
You can also send the pics of work done in excel or answers in excel.
EOY Investments Annual Receips Annual O&M Annual Depreciation Before Tax NCF Taxes After Tax NCF0
-$500,000.00 $0.00 $0.00 $0.00 -$500,000.00 $0.00 -$500,000.00 1 $200,000.00 -$30,000.00 -$45,000.00 $125,000.00 -$37,500 $87,500 2 $250,000.00 -$30,900.00 -$45,000.00 $174,100.00 -$52,230.00 $121,870.00 3 $300,000.00 -$31,827.00 -$45,000.00 $223,173.00 -$66,951.90 $156,221.10 4 $300,000.00 -$32,781.81 -$45,000.00 $222,218.19 -$66,665.46 $155,552.73 5 $300,000.00 -$33,765.26 -$45,000.00 $221,234.74 -$66,370.42 $154,864.31 6 $350,000.00 -$34,778.22 -$45,000.00 $270,221.78 -$81,066.53 $189,155.24 7 $400,000.00 -$35,821.57 -$45,000.00 $319,178.43 -$95,753.53 $223,424.90 8 $350,000.00 -$36,896.22 -$45,000.00 $268,103.78 -$80,431.14 $187,672.65 9 $200,000.00 -$38,003.10 -$45,000.00 $116,996.90 -$35,099.07 $81,897.83 10 $50,000 $150,000.00 -$39,143.20 -$45,000.00 $115,856.80 -$34,757.04 $81,099.76Explanation / Answer
Statement showing NPV
Since NPV is positive this is viable project
Finding NPV if SOYD Depreciation method is used
Statement showing depreciation
Statement showing NPV
There is diffrence between two method because in SOYD Depreciation method Higher depreciation is charge in first years hence increasing cash flow. Since cash flow are high in beginning their PV will be more as they can be reinvested sonner. Thus second method provides higher NPV
Hence it is better for company to use SOYD depreciation
After Tax NCF,IRR = 34.92715%. Since at This rate NPV comes to 0
Particulars 1 2 3 4 5 6 7 8 9 10 Total PAT 87500 121870 156221 155553 154864 189155 223425 187673 81898 81100 Add: depreciation 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 Annual cash flow 132500 166870 201221 200553 199864 234155 268425 232673 126898 126100 Scrap value 50000 Total 132500 166870 201221 200553 199864 234155 268425 232673 126898 176100 PVIF @ 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 PV 115217 126178 132306 114667 99368 101232 100911 76061 36072 43529 945541 Less : initial investment 500000 NPV 445541