Capital Budgeting Analysis For New Machine: CaseIH Combine
| Year | |||||
| Particulars | 0 | 1 | 2 | 3 | 4 |
| Cost for new machine | -$267,000 | ||||
| Trade-in-Value of Older machine for new machine | $152,000 | ||||
| Total Initial Investment | -$115,000 | $1 | $2 | $3 | $4 |
| Savings in Old Machine Repairing Cost | $27,000 | $10,000 | |||
|
Savings in Maintenance Cost |
$4,000 | $3,000 | $2,000 | $2,000 | |
|
Savings in Labor Cost |
$1,200 | $1,200 | $1,200 | $1,200 | |
|
Savings in Fuel Cost |
$1,378 | $1,378 | $1,378 | $1,378 | |
|
Capital Cost Allowance |
-$80,100 | -$80,100 | -$80,100 | -$80,100 | |
|
Actual Benefits of extra capacity |
$53,200 | $53,200 | $53,200 | $53,200 | |
| Incremental Net Profit before tax | $27,000 | -$20,322 | -$11,322 | -$22,322 | -$22,322 |
| Income Tax | -$5,670 | $0 | $0 | $0 | $0 |
| Incremental Net Profit after tax | $21,330 | -$20,322 | -$11,322 | -$22,322 | -$22,322 |
|
Add: Capital Cost Allowance |
$80,100 | $80,100 | $80,100 | $80,100 | |
| Incremental Net Operating Cash Flow | $21,330 | $59,778 | $68,778 | $57,778 | $57,778 |
|
Trade-in Value of New Machine |
$140,000 | ||||
|
Loss on Trade-in Value of Old Machine |
-$75,000 | ||||
| Total Terminal Value | $0 | $0 | $0 | $0 | $65,000 |
| Net Cash Flow | -$93,670 | $59,778 | $68,778 | $57,778 | $122,778 |
| Required Rate of Return | 15.00% | 15.00% | 15.00% | 15.00% | 15.00% |
| Discounted Cash Flow | -$93,670 | $51,981 | $52,006 | $37,990 | $70,198 |
Bierman Jr, H., & Smidt, S. (2014). Advanced capital budgeting: Refinements in the economic analysis of investment projects. Routledge.
Bora, B. (2015). Comparison between net present value and internal rate of return. International Journal of Research in Finance and Marketing, 5(12), 61-71.
Burns, R., & Walker, J. (2015). Capital budgeting surveys: the future is now
Gabriel Filho, L. A., Cremasco, C. P., Putti, F. F., Goes, B. C., & Magalhaes, M. M. (2016). Geometric Analysis of Net Present Value and Internal Rate of Return. Journal of Applied Mathematics & Informatics, 34, 75-84.