Mechanical Drying Equipment-Version 2

8/7/2019 Mechanical Drying Equipment-Version 2

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New drying Equipment Existing drying Equipment

Operating Cash Cost 10.00 Operating Cash Cost 28Depreciation(WDV) 25.00% Cost of Equipment (in 1997 25Useful Life (Years) 12 Useful Life (Years) 8

Salvage Value(% of Orginal Value 10% Installation Cost (in 1997) 10Delivery Time (Months) 12 Salvage Value - Now (1999 4Installation Cost 15 Salvage Value - End (2004) 2Payment @ Order 32.5Payment @ Delivery 32.5

Operating Cost

% of Fuel Cost 80%% Annual Rise in Fuel Cost 10%Inflation 6%

Over All Inflation 9.20%


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Overhauling drying Equipment

Operating Cash Cost 22Capital Expenditure 25Life Extension 5

New Useful Life 13Salvage Value - End (2009) 3

Debt Option

Years 10Annual Interest Rate 15%Govt. Bond Yield 12.50%Risk Premium (Long Term) 7.50%

Risk Premium (Replacement) 3.50%

Cost of Capital (Long Term) 20.00%Cost of Capital (Replacement 16.00%

Corporate Tax 35.00%


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N0. Year

1997 8.75 26.251998 6.56 19.69

1999 4.92 14.771 2000 3.69 11.07 22.69 68.072 2001 2.77 8.31 17.02 51.063 2002 2.08 6.23 12.76 38.294 2003 1.56 4.67 9.57 28.725 2004 1.17 3.50 7.18 21.546 2005 0.88 2.63 5.38 16.157 2006 0.66 1.97 4.04 12.128 2007 0.49 1.48 3.03 9.099 2008 0.37 1.11 2.27 6.82

10 2009 0.28 0.83 1.70 5.11

11 2010 0.21 0.62 1.28 3.8312 2011 0.16 0.47 0.96 2.88

Value of New Machine

Value on New Machine 80Salvage Value -4BV of Old Machine 14.77Net Value 90.77

Depreciation(Old Machine)

Book Value(Old

Machine)

Depreciation(New

Machine)

Book Value(New

Machine)


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PAT

1.29 7.94 6.65 11.70 7.000.97 5.96 4.99 11.700.73 4.47 3.74 11.700.55 3.35 2.81 11.700.41 2.51 2.10 11.700.31 1.88 1.58 11.700.23 1.41 1.18 11.700.17 1.06 0.89 11.700.13 0.80 0.67 11.700.10 0.60 0.50 11.70

0.07 0.45 0.37 11.700.05 0.34 0.28 11.70

Tax Saving(Old Depreciation)

Tax Saving(New

Depreciation)

IncrementalBenefit

(Depreciation)

InvestmentAllowance


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Net Cash Flow PV of NCF

3.77 4 33.12 28.55 26.1216.69 12.40 16.6915.44 9.89 15.4414.51 8.01 14.51

-2 11.80 5.62 11.8013.28 5.45 13.2812.88 4.56 12.8812.59 3.84 12.5912.37 3.25 12.3712.20 2.77 12.20

12.07 2.36 12.078 19.98 3.37 19.98

PV 90.07 PVCash Out Flow 85.2 Cash Out Flow

NPV 4.87 NPV

Tax Shield(Loss)

SalvageValue

Net Cash Flow(Without Inv. All)


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22.5212.40

9.898.015.625.454.563.843.252.77

2.363.37

84.0385.2

-1.17

PV of NCF(Without Inv.

All)


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N0. Year

1997 8.75 26.251998 6.56 19.69

1999 4.92 14.771 2000 3.69 11.07 22.692 2001 2.77 8.31 17.023 2002 2.08 6.23 12.764 2003 1.56 4.67 9.575 2004 1.17 3.50 7.186 2005 0.88 2.63 5.397 2006 0.66 1.97 4.048 2007 0.49 1.48 3.039 2008 0.37 1.11 2.27

10 2009 0.28 0.83 1.70

11 2010 0.21 0.62 1.2812 2011 0.16 0.47 0.96

Value of New Machine

Value on New Machine 80Salvage Value -4BV of Old Machine 14.77Net Value 90.77


Book Value(Old

Machine)

Depreciation(New

Machine)


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PAT

68.08 1.29 7.94 6.65 12.7851.06 0.97 5.96 4.99 13.9538.29 0.73 4.47 3.74 15.2428.72 0.55 3.35 2.81 16.6421.54 0.41 2.51 2.10 18.1716.16 0.31 1.88 1.58 19.8412.12 0.23 1.41 1.18 21.669.09 0.17 1.06 0.89 23.666.82 0.13 0.80 0.67 25.835.11 0.10 0.60 0.50 28.21

3.83 0.07 0.45 0.37 30.812.88 0.05 0.34 0.28 33.64

Book Value(New

Machine)


Tax Saving(New

Depreciation)

IncrementalBenefit

(Depreciation)


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7.00 3.77 4 34.19 29.48 27.1918.94 14.08 18.9418.98 12.16 18.9819.44 10.74 19.44

-2 18.27 8.70 18.2721.42 8.79 21.4222.85 8.08 22.8524.55 7.49 24.5526.50 6.97 26.5028.71 6.51 28.71

31.18 6.09 31.188 41.92 7.06 41.92

PV 126.14 PVCash Out Flow 85.2 Cash Out Flow

NPV 40.94 NPV

InvestmentAllowance

TaxShield(Loss)

SalvageValue



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23.4414.0812.1610.74

8.708.798.087.496.976.51

6.097.06

120.1185.2

34.91

PV of NCF(Without Inv.

All)


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N0. Year

1997 8.75 26.251998 6.56 19.69

1999 4.92 14.771 2000 3.69 11.07 9.94 29.822 2001 2.77 8.31 7.46 22.373 2002 2.08 6.23 5.59 16.784 2003 1.56 4.67 4.19 12.585 2004 1.17 3.50 3.15 9.446 2005 0.88 2.63 2.36 7.087 2006 0.66 1.97 1.77 5.318 2007 0.49 1.48 1.33 3.989 2008 0.37 1.11 1.00 2.99

10 2009 0.28 0.83 0.75 2.24

Value of OH Machine

Value 25Old BV 14.77Net Value 39.77


Book Value(Old Machine)

Depreciation(OH)

Book Value(OH)


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PAT

1.29 3.48 2.19 3.90 2.190.97 2.61 1.64 3.900.73 1.96 1.23 3.900.55 1.47 0.92 3.900.41 1.10 0.69 3.900.31 0.83 0.52 3.900.23 0.62 0.39 3.900.17 0.46 0.29 3.900.13 0.35 0.22 3.900.10 0.26 0.16 3.90


Tax Saving(OH)

IncrementalBenefit

(Depreciation)

InvestmentAllowance


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8.28 6.90 6.09 5.075.54 3.85 5.54 3.855.13 2.97 5.13 2.974.82 2.33 4.82 2.33

-2 2.59 1.04 2.59 1.044.42 1.48 4.42 1.484.29 1.20 4.29 1.204.19 0.97 4.19 0.974.12 0.80 4.12 0.80

3 7.06 1.14 7.06 1.14

PV 22.67 PV 20.85Cash Out Flow 25 Cash Out Flow 25

NPV -2.33 NPV -4.15

SalvageValue


PV of NCF(Without Inv. All)


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N0. Year

1997 8.75 26.251998 6.56 19.69

1999 4.92 14.771 2000 3.69 11.07 9.94 29.822 2001 2.77 8.31 7.46 22.373 2002 2.08 6.23 5.59 16.784 2003 1.56 4.67 4.19 12.585 2004 1.17 3.50 3.15 9.446 2005 0.88 2.63 2.36 7.087 2006 0.66 1.97 1.77 5.318 2007 0.49 1.48 1.33 3.989 2008 0.37 1.11 1.00 2.99

10 2009 0.28 0.83 0.75 2.24

Value of OH Machine

Value 25Old BV 14.77Net Value 39.77


Book Value(Old Machine)

Depreciation(OH)

Book Value(OH)


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PAT

1.29 3.48 2.19 4.26 2.190.97 2.61 1.64 4.650.73 1.96 1.23 5.080.55 1.47 0.92 5.550.41 1.10 0.69 6.060.31 0.83 0.52 6.610.23 0.62 0.39 7.220.17 0.46 0.29 7.890.13 0.35 0.22 8.610.10 0.26 0.16 9.40


Tax Saving(OH)

IncrementalBenefit

(Depreciation)

InvestmentAllowance


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8.63 7.19 6.45 5.376.29 4.37 6.29 4.376.31 3.65 6.31 3.656.47 3.12 6.47 3.12

-2 4.75 1.91 4.75 1.917.13 2.39 7.13 2.397.61 2.12 7.61 2.128.18 1.90 8.18 1.908.83 1.71 8.83 1.71

3 12.57 2.03 12.57 2.03

PV 30.40 PV 28.58Cash Out Flow 25 Cash Out Flow 25

NPV 5.40 NPV 3.58

SalvageValue


PV of NCF(Without Inv. All)


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Computed NPV's for various Combinatio

Existing Vs New Equipment Without Inflation

With Investment Allowance 4.87

Without Investment Allowance -1.17

Existing Vs Overhauling Without Inflation

With Investment Allowance -2.33Without Investment Allowance -4.15


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s

With Inflation

40.94

34.91

With Inflation

5.403.58

Documents

Mechanical Drying Equipment-Version 2