Cost = $20,000 Life = 5 years Residual value = $2,000 Find depriciation

Initial investment Pretax salvage value Cost savings per year 535,000 30,000 150,000 Cost savings per year 100,000 Working capital reduction $ 60,000 Annual depreciation charge $ Aftertax salvage value 6969 107,000 22,800 Tax rate Required return *Depreciation straight-line over life 24% 11% 5 Output area: $ NPV 150,000 cost savings $ 100,000 Year Cash flow Year 0 $ (475,000) 0 $ 1 139,680 1 2 139,680 3 139,680 4 139,680 5 102,480 2345 Accept/Reject Required pretax cost savings: NPV w/o OCF Required OCF OCF less dep. tax shield Cost savings 69 69 69 $ (497,076.39) $ 134,494.11 $ 108,814.11 cost savings Cash flow (475,000) 101,680 101,680 101,680 101,680 64,480

Reconstruction cost on your new home is $500,000. You decide to insure it for only what you paid for it - $375,000. 2 years later you have a $150,000 loss. How much will your insurance company pay? $125,600 O $140,625 $150,000 O $75,000

UJ0 per ycal 101 all assct tmat mialy Cost B28,000, lany Cost $28 Ust $26, has a salvage value of $1500 whenever it is sold, and generates cash flow of $2900 per year. Use factors and a spreadsheet. 8.27 A vibrating sieve shaker in a soil analysis labora- tory has a first cost of $8000 and an expected sal- vage value of $500 when it is sold. A positive cash flow of only $900 per year can be attributed di- rectly to the shaker. (a) Determine the payback period if the required return is 8% per year. (b) If the asset will be in service for an estimated 12 years, should it be purchased? 8.28 You work part time selling mobile phone ads on a OINS commission basis. (a) Using factors and a spread- sheet, determine the number of years you would