文档介绍：Corporate Finance Ross Westerfield Jaffe
Sixth Edition
Sixth Edition
7
Chapter Seven
Net Present Value and Baldwin Company: An Example
Costs of test marketing (already spent): $250,000.
Current market value of proposed factory site (which we own): $150,000.
Cost of bowling ball machine: $100,000 (depreciated according to ACRS 5-year life).
Increase in net working capital: $10,000.
Production (in units) by year during 5-year life of the machine: 5,000, 8,000, 12,000, 10,000, 6,000.
Price during first year is $20; price increases 2% per year thereafter.
Production costs during first year are $10 per unit and increase 10% per year thereafter.
Annual inflation rate: 5%
Working Capital: initially $10,000 changes with sales.
The Worksheet for Cash Flows of the Baldwin Company
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Investments:
(1) Bowling ball machine – *
(2) Accumulated depreciation
(3) Adjusted basis of machine after depreciation (end of year)
(4) Opportunity cost – (warehouse)
(5) Net working capital 0 (end of year)
(6) Change in net – – – working capital
(7) Total cash flow of – – – investment [(1) + (4) + (6)]
* We assume that the ending market value of the capital investment at year 5 is $30,000. Capital gain is the difference between ending market value and adjusted basis of the machine. The adjusted basis is the original purchase price of the machine less depreciation. The capital gain is $24,240 (= $30,000 – $5,760). We will assume the incremental corporate tax for Baldwin on this project is 34 percent. Capital gains are now taxed at the ordinary income rate, so the capital gains tax due is $8,240 [ ($30,000 – $5,760)]. The after-t