Swot Analysis of Mercury Drug Store

Topics: Net present value, Depreciation, Investment Pages: 7 (1137 words) Published: March 23, 2013
Questions ON PROBLEM 1
a. Determine the depreciation associated with the new equipment, as well as the unused depreciation on the old equipment. b. Determine the cash inflows (after depreciation and taxes) associated with the new equipment.

c. Determine the cash outflows associated with the equipment. Show each of the items that would appear in the T-account. Then show both the cash inflows and cash outflows in the T-account. d. Determine (1) the net present value, (2) the profitability index, (3) the internal rate of return, and (4) the payback period of the proposed project.

DEPRECIATION USING MACRS TABLE (NEW EQUIPMENT)
1ST YR 75,000.00 X 33.33% = 24,997.50
2ND Yr 75,000.00 x 44.45% = 33,3337.50
3rd Yr. 75,000.00 x 14.81 % = 11,107.50
4th yr 75,000.00 x 7.41 % = 5,557.50
DEPRECIATION USING MACRS TABLE (NEW EQUIPMENT)
1ST YR 50,000.00 X 33.33% = 16,665
2ND Yr 50,000.00 x 44.45% = 22,225.00
3rd Yr. 50,000.00 x 14.81 % = 7,405.00
4th yr 50,000.00 x 7.41 % = 3,705.00
16,665.00 + 22,225.00 + 7,405.00 = 46,295.00
16,665.00 + 22,225.00 + 7,405.00 = 46,295.00 50,000.00 – 46,495 = 3,705.00 Unused Depreciation on old equipment

CASH INFLOWS/CASH OUTFLOWS FOR NEW EQUIPMENT
1ST YEAR TOTAL SAVINGS 30,000.00 Less: Depreciation Expense 24,997.50 Freight Expense 5,000.00 Working Capital 3,000.00 32,997.50

Income before Tax ( 2,992.500 ) VVVVVVVVVVVV 2nd YEAR TOTAL SAVINGS 30,000.00 Less: Depreciation Expense 33,337.50 Working Capital (30,000 x 12%) 3,600.00 36,937.50 Income before Tax ( 6,937.50) Vvvvvvvvvvv 3rd YEAR TOTAL SAVINGS 30,000.00 Less: Depreciation Expense 11,107.50 Working Capital (30,000 x 12%) 3,600.00 14,707.50 Income before Tax 15,292.50 Income Tax (15,292.50 x 30%) 4,587.50 NET INCOME 10,705.00 VVVVVVVVV

4TH YEAR TOTAL SAVINGS 20,000.00 Less: Depreciation Expense 5,557.50 Working Capital (20,000 x 12%) 2,400.00 7,957.50 Income before Tax 12,042.50 Income Tax (12,042.50 x 30%) 3,612.75 NET INCOME 8,429.75...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay about drugs store
  • Essay on Swot Analysis of Dunnes Stores
  • Mercury Drug Essay
  • Essay about Swot Analysis
  • SWOT Analysis and Tools Essay
  • Swot Analysis Essay
  • swot analysis for dabur inc Essay
  • Mercury drug horizontal Analysis Essay

Become a StudyMode Member

Sign Up - It's Free