Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
$120,000.00
48,000.00
$72,000.00
28,000.00
$43,200.00
48,000.00
$91,200.00
$120,000.00
48,000.00
$72,000.00
28,000.00
$43,200.00
48,000.00
$91,200.00
$120,000.00
20,000.00
$100,000.00
40,000.00
$60,000.00
20,000.00
$80,000.00
$120,000.00
0.00
$120,000.00
48,000.00
$72,000.00
0.00
$72,000.00
$120,000.00
0.00
$120,000.00
48,000.00
$72,000.00
0.00
$72,000.00
$0.00
0.00
$0.00
0.00
$0.00
0.00
$0.00
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
$250,000.00
174,000.00
$76,000.00
30,400.00
$45,600.00
174,000.00
$219,600.00
$270,000.00
278,400.00
$(8,400.00)
(3,360.00)
$(5,040.00)
278,400.00
$273,360.00
$300,000.00
165,300.00
$134,700.00
53,880.00
$80,820.00
165,300.00
$246,120.00
$330,000.00
104,400.00
$225,600.00
90,240.00
$135,360.00
104,400.00
$239,760.00
$370,000.00
104,400.00
$265,600.00
106,240.00
$159,360.00
104,400.00
$263,760.00
$0.00
43,500.00
$(43,500.00)
(17,400.00)
$(26,100.00)
43,500.00
$17,400.00
Earnings Before Depreciation
and Taxes
Depreciation
Earnings Before Tax
Taxes (40%)
Net operating taxes after taxes
Depreciation
Operating cash inflows
Press A
Earnings Before Depreciation
and Taxes
Depreciation
Earnings before taxes
Taxes (40%)
Net operating taxes after taxes
Depreciation
Operating cash inflows
Press B
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
$210,000.00
132,000.00
$210,000.00
211,200.00
$210,000.00
125,400.00
$210,000.00
79,200.00
$210,000.00
79,200.00
$0.00
33,000.00
Earnings Before Depreciation
and Taxes
Depreciation
Earnings before taxes
Taxes
Net operating taxes after taxes
Depreciation
Operating cash inflows
YEAR
1
2
3
4
5
6
PRESS A
$219,600.00
$273,360.00
$246,120.00
$239,760.00
$263,760.00
$17,400.00
$78,000.00
31,200.00
$46,800.00
132,000.00
$178,800.00
$(1,200.00)
480.00
$(720.00)
211,200.00
$210,480.00
EXISTING
$91,200.00
$91,200.00
$80,000.00
$72,000.00
$72,000.00
$0.00
Net Present Value (NPV)
Press A
Year 1
Year 2
Year 3
Year 4
Year 5
Press B
Cash Flow
$128,400.00
$182,160.00
$166,120.00
$167,760.00
$449,560.00
PVlF 14%
0.877
0.769
0.675
0.592
0.519
PV
$112,631.58
$140,166.20
$112,126.27
$99,327.39
$233,487.38
$697,738.82
$84,600.00
34,560.00
$50,760.00
125,400.00
$176,160.00
INCREMENTAL
$128,400.00
$182,160.00
$166,120.00
$167,760.00
$191,760.00
$17,400.00
$130,800.00
52,320.00
$78,480.00
79,200.00
$157,680.00
PRESS B
$178,800.00
$210,480.00
$176,160.00
$157,680.00
$157,680.00
$13,200.00
$130,800.00
52,320.00
$78,480.00
79,200.00
$157,680.00
EXISTING
$91,200.00
$91,200.00
$80,000.00
$72,000.00
$72,000.00
$0.00
$(33,000.00)
13,200.00
$(19,800.00)
33,000.00
$13,200.00
INCREMENTAL
$87,600.00
$119,280.00
$96,160.00
$85,680.00
$85,680.00
$13,200.00
Year 1
Year 2
Year 3
Year 4
Year 5
Cash Flow
$87,600.00
$119,280.00
$96,160.00
$85,680.00
$206,880.00
PVlF 14%
0.877
0.769
0.675
0.592
0.519
PV
$76,842.11
$91,782.09
$64,905.26
$50,729.44
$107,446.99
$391,705.88
NPV = $677,769.21 - $662,000 = $35,738.82
NPV = $379,383.92 - $361,600 = $30,105.88
Internal Rate of Return
Computed from Online IRR Calculator
Press A
Press B
14.82%
15.83%
D. Draw net present value profiles for the two replacement presses on the same set of axes, and discuss conflicting
rankings of the two presses, resulting from use of NPV and IRR decision techniques .
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
10
12
14
16
18
When the cost of capital is below approximately 15%, Press A is preferred over Press B, while at costs greater than 15%,
Press B preferred. Since the firm's cost of capital is 14%, conflicting rankings exist. Press A has a higher value and is
therefore preferred using NPV, whereas Press B's IRR of 15.83% causes it to be preferred over Press A, whose IRR is
14.82 percent using this measure
