M5A1 Case Analysis: Lasting Impressions Company



Case Analysis: Lasting Impressions Company

Part A: 1 Initial investment

Calculation for Press A

Initial cost of press A $ 830, 000

Cost of installation+ $ 40, 000

Total installed cost of Press A $ 870, 000

After-tax proceeds from sale of old press

Income from old press sale$ 420, 000

Tax on proceeds from sale of old press

($ 400, 000 - [(.20 + .32 + .19) x $ 400, 000]

Book value = 116,000

Gain on sale

420, 000 - 116, 000 = 304, 000

304,000 x .40 = -$ 121, 600

Total after-tax proceeds - $ 298, 400

Net working capital Change + $ 90, 400

($ 25, 400 + $ 120, 000 - $ 20, 000) current assets

Less $ 35,000 current liabilities

Total initial investment $ 662, 000

Calculation for Press B

Initial cost of Press B $ 640, 000

Cost of installation + $ 20, 000

Total installed cost of Press B $ 660, 000

After-tax income from old press sale $ 420, 000

Tax on income from old press sale

(400,000 - [(.20 + .32 + .19) x 400,000]

Book value = 116,000

Gain on sale

420,000 - 116,000 = 304,000

304,000 x .40 = $ 121, 600

Total after-tax proceeds -$ 298, 400

No change in net working capital

Total initial investment $ 361, 600

(Gitman, 2009, pp. 393-394)

Deprecation Calculation

Deprecation has been calculated through by means depreciation scale of MARCS 5 year.

Press A

Year

Cost

%

Depreciation

Value

1

$ 870, 000

20%

$174, 000

$ 696, 000

2

$ 870, 000

32%

$ 278, 000

$ 417, 600

3

$ 870, 000

19%

$ 165, 300

$ 252, 300

4

$ 870, 000

12%

$ 104, 400

$ 147, 900

5

$ 870, 000

12%

$ 104, 400

$ 43, 500

6

$ 870, 000

5%

$ 43, 500

$ 0

Press B

Year

Cost

%

Depreciation

Value

1

$ 660, 000

20%

$ 132, 000

$ 528, 000

2

$ 660, 000

32%

$ 211, 200

$ 316, 800

3

$ 660, 000

19%

$ 125, 400

$ 191, 400

4

$ 660, 000

12%

$ 79, 200

$ 112, 200

5

$ 660, 000

12%

$ 79, 200

$ 33, 000

6

$ 660, 000

5%

$ 33, 000

$ 0

Part A: 2 Operating Cash Flows

Press A

year 1

Year 2

Year 3

Year 4

Year5

Year 6

Revenue

$ 250, 000

$ 270, 000

$ 300, 000

$ 330, 000

$ 370, 000

$ 0

-Expenses $ 0

$ 0

$ 0

$ 0

$ 0

$ 0

EBDIT

$ 250, 000

$ 270, 000

$ 300, 000

$ 330, 000

$ 370, 000

$ 0

-depreciation

$ 174, 000

$ 278, 000

$ 165, 300

$ 104, 400

$ 104, 400

$ 43, 500

EBIT

$ 76, 000

-$ 8, 000

$ 134, 700

$ 225, 600

$ 265, 600

-$ 43, 500

-Taxes 40%

$ 30, 400

-$ 3, 200

$ 53, 880

$ 90, 240

$ 106, 240

-$ 17, 400

NOPAT

$ 45, 600

-$ 4, 800

$ 80, 820

$ 135, 360

$ 159, 360

-$ 26, 100

+depreciation

$ 174, 000

$ 278, 000

$ 165, 300

$ 104, 400

$ 104, 400

$ 43, 500

OCF

$ 219, 600

$ 273, 200

$ 246, 120

$ 239, 760

$ 263, 760

$ 17, 400

Press B

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Revenue

$ 210,000

$ 210,000

$ 210,000

$ 210,000

$ 210,000

$ 0

-Expenses $ 0

$ 0

$ 0

$ 0

$ 0

$ 0

EBDIT

$ 210,000

$ 210,000

$ 210,000

$ 210,000

$ 210,000

$ 0

-depreciation

$ 132,000

$ 211,200

$ 125,400

$ 79,200

$ 79,200

$ 33,000

EBIT

$ 78,000

-$ 1,200

$ 194,600

$ 130,800

$ 130,800

-$ 33,000

-Taxes 40%

$ 31,200

-$ 400

$ 77,840

$ 52,320

$ 53,200

-$ 13,200

NOPAT

$ 46,800

-$ 800

$ 116,760

$ 78,480

...