Liquid Chemical Case

Topics: Net present value, Cash flow, Depreciation Pages: 4 (1008 words) Published: October 17, 2011
Chapter 04 - Fundamentals of Cost Analysis for Decision Making

4-61. (continued) Incremental Cash Flow – Alternative A Make Containers and Perform Maintenance Year of Operation 2 3

0 Buy GHL Tax savings on purchase Cash flow on purchase Other materials Labor: Supervisor Labor: Workers Rent: Warehouse Maintenance Other expenses Manager's salary Total costs Tax savings Cash flow due to costs Tax effects of depreciation Tax effect of GHL costs Total cash flow Discount rate factor (10%) Present value NPV

1

4

$(500,000) (50,000) (450,000) (85,000) (36,000) (157,500) (80,000) $(1,358,500) 543,400 $(815,100) 60,000 80,000 $(675,100) 0.9091 $(613,727)

$(500,000) (50,000) (450,000) (85,000) (36,000) (157,500) (80,000) $(1,358,500) 543,400 $(815,100) 60,000 80,000 $(675,100) 0.8264 $(557,934)

$(500,000) (50,000) (450,000) (85,000) (36,000) (157,500) (80,000) $(1,358,500) 543,400 $(815,100) 60,000 80,000 $(675,100) 0.7513 $(507,213)

$(500,000) (50,000) (450,000) (85,000) (36,000) (157,500) (80,000) $(1,358,500) 543,400 $(815,100) 60,000 80,000 $(675,100) 0.6830 $(461,102)

5 $(240,000) $96,000 $(144,000) $(500,000) (50,000) (450,000) (85,000) (36,000) (157,500) (80,000) $(1,358,500) 543,400 $(815,100) $(959,100) 0.6209 $(595,526)

1.0000

$(2,735,502)

4-51

Chapter 04 - Fundamentals of Cost Analysis for Decision Making

4-61. (continued) Incremental Cash Flow – Alternative B Make Containers and Buy Maintenance 0 Buy GHL Tax savings on purchase Cash flow on purchase Other materials Labor: Supervisor Labor: Workers Rent: Warehouse Maintenance Other expenses Manager's salary Maintenance contract Total costs Tax savings Cash flow due to costs Tax effects of depreciation Tax effect of GHL costs Total cash flow Discount rate factor (10%) Present value NPV 1 Year of Operation 2 3 4 5 $(120,000) $48,000 $(72,000) $(450,000) (50,000) (360,000) (85,000) (36,000) (92,500) (80,000) (375,000) $(1,528,500) 611,400 $(917,100) 32,000 $(957,100) 0.6209...
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