Case Studies



Case Studies

CT 14.2: Gramling Inc.

A. Should Gramling invest in this equipment?

New Operating Equipment

Life

15

Cost

$300,000

One-time cost

$15,000

Depreciation ~ straight Line

20000

Generate cash profits

$83,000

Hurdle Rate

11%

Tax Rate

30%

Depreciation calculation: (Cost - salvage value)/ life of the assets

= 300, 000/15

20, 000

In order to see whether investment in this equipment is profitable or not, Net Present Value and IRR will be calculated to see new equipment viability.

NPV:

Initial cost of new equipment is as followed:

Initial investment

Relevant Items:

Cost of New equipment

$300,000

Working capital required

$15,000

Net annual cash receipts

-

Salvage value of equipment in 5 years

20000

Total cost

$335,000

Cash flow

Cash inflows

11% hurdle rate

Discounted Cash ...