(Appendix 12A)Following Is a Capital Budget Schedule for a New

question 135

Essay

(Appendix 12A)Following is a capital budget schedule for a new product that will increase revenues. Fill in the blanks for the following capital budgeting schedule.
Cash Flows Discount rate Tax rate 25%
Increase in revenue $12,000 Risk free rate 0.03
Variable costs $2,000 Risk premium 0.06
Fixed costs $1,000 Inflation rate 0.05
Net $9,000 Discount rate 0.1445 - round to 0.14
Investment
Purchase $25,000
Delivery $300
Renovation $200
Total $25,500
Nominal Cash Flows
Period Income Inflated Less 25% Discounted
1 $9,000 $9,450 $7,088 _________
2 $9,000 $9,923 $7,442 _________
3 $9,000 $10,419 $7,814 _________
4 $9,000 $10,940 $8,205 _________
5 $9,000 $11,487 $8,615 _________
Total PV _________
Amortization Tax Savings
Period MACRS Investment Amortization Tax Savings Discounted
1 0.3333 $25,500 $8,499 _________ _________
2 0.4445 $25,500 $11,335 _________ _________
3 0.1481 $25,500 $3,777 _________ _________
4 0.0741 $25,500 $1,890 _________ _________
Total PV _________
Net Present Value
Cash Flows _________
Amortization Tax Saving _________
Less Investment _________
NPV _________

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