Original cost of equipment Salvage value Useful Life Tax information MACRS recovery period Tax depreciation method Tax rate Annual pretax cash inflow from operations Tax Depreciation calculation Beginning Undepreciated Amount 125,000 83,333 27,778 9,259 3,086
$125,000 10% 5 yrs 3 yrs DDB 40% 60,000
Year 1 2 3 4 5
Depreciation 41,667 55,556 18,519 6,173 2,058
Ending Undepreciated Amount 83,333 27,778 9,259 3,086 1,029
MACRS RATE YEAR 1 - half year convention YEAR 2 TO 3 Cash flow calculations Purchase Cashflow from operations Savings less taxes Net cash flow from operations Cashflow from tax deductions Tax deduction Net cash flow from tax savings Combined cashflow Total cash(outflow) inflow Internal rate of return Payback period Two years, four months Year 1 Year 2 1995
33% 67% 1996 1997 1998
125,000
60,000 (24,000) 36,000
60,000 (24,000) 36,000
60,000 (24,000) 36,000
41,667 16,667 (125,000) (125,000) 28% Annual 52,667 58,222 Cumulative 52,667 110,889 52,667 237,500
55,556 22,222 58,222
18,519 7,407 43,407
Year 3
43,407
154,296
2.33
1999
2000
2001 12,500
60,000 (24,000) 36,000
60,000 (24,000) 36,000
0 (5,000) (5,000)
6,173 2,469 38,469
2,058 823 36,823
1,029 412 7,912