Essay About Graph Of The Npv Profiles And Student Version Of The Model

Chicago Valve Company – Capital Budgeting Decision Methods
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CASE-11M
Student Version
10/31/07
CHICAGO VALVE COMPANY
Capital Budgeting Decision Methods
This case is designed as an introduction to capital budgeting methods.
NPV, IRR, MIRR, PI, and Payback are included in the analysis.
The model develops the projects cash flows on the basis of input cost
and savings data, then calculates the above decision criteria. Note
that this model was constructed specifically for this case, and hence
project life and depreciation allowances are fixed. The spreadsheet
sheet NPV-PROF contains a graph of the NPV profiles and the sheet
MULTIPLE contains a graph of the multiple IRR project.
If you are using the student version of the model, the following cells
have been blanked out: C40:C41,B58:C65, D57:D65, B67:B72, and F70:F72.
Before using the model, it is necessary to fill in the empty cells with the
appropriate formulas. Once this is done, the model is ready for use.
INPUT DATA:
KEY OUTPUT:
New system:
Delivered cost
$200,000
$36,955
Installation
$12,500
16.2%
Salvage value
-13.2%
Annual savings
$60,000
Payback
Old system:
Current book value
Current market value
Removal cost
Other data:
Cost of capital
11.0%
Tax rate
40.0%
MODEL-GENERATED DATA:
Cash flows at t=0:
End-of-project cash flows:
Cost of new system
$200,000
Salvage value —->
Installation
12,500
SV tax
——–
———-
Total cost
$212,500
Total
——–
Proceeds from old equip
Depreciation information:
Tax on proceeds
Removal cost (AT)
Depreciable basis:
($212,500)
——–
Net cash flow, old
——–
Net invest. outlay
$212,500
========
Annual cash flows:
Deprn
A.T. Cost
Tax saving
Saving
Net CF
Cum CF
——–
————
——
——
($212,500)
($212,500)
$17,000
$36,000
$53,000
(159,500)
27,200
$36,000
$63,200
(96,300)
16,150
$36,000
$52,150
(44,150)
10,200
$36,000
$46,200
2,050
9,350
$36,000
$45,350
47,400
5,100
$36,000
$41,100
88,500
$36,000
$36,000
124,500
$36,000
$36,000
160,500
$36,955
Analysis of Short-Term Project:
16.2%
($120,000)
Year 1 CF
$150,000
MIRR:
-13.2%
$15,135
Payback: