Flatte Restaurant is considering the purchase of a $9,200 soufflé maker. The sou
ID: 2734524 • Letter: F
Question
Flatte Restaurant is considering the purchase of a $9,200 soufflé maker. The soufflé maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 1,600 soufflés per year, with each costing $2.40 to make and priced at $4.85. Assume that the discount rate is 10 percent and the tax rate is 40 percent.
Flatte Restaurant is considering the purchase of a $9,200 soufflé maker. The soufflé maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 1,600 soufflés per year, with each costing $2.40 to make and priced at $4.85. Assume that the discount rate is 10 percent and the tax rate is 40 percent.
Explanation / Answer
Statement showing Cash flows Particulars Time PVf@10% Amount PV Cash Outflows - 1.00 (9,200.00) (9,200.00) PV of Cash outflows = PVCO (9,200.00) Cash inflows 1.00 0.9091 3,088.00 2,807.27 Cash inflows 2.00 0.8264 3,088.00 2,552.07 Cash inflows 3.00 0.7513 3,088.00 2,320.06 Cash inflows 4.00 0.6830 3,088.00 2,109.15 Cash inflows 5.00 0.6209 3,088.00 1,917.41 PV of Cash Inflows =PVCI 11,705.95 NPV= PVCI - PVCO 2,505.95 Revenue from Sale = 1600*4.85 7,760.00 Costs to make = 1600*2.40 3,840.00 Income before depreciation and tax 3,920.00 Depreciation = 9200/5 1,840.00 Inome before tax 2,080.00 Tax @40% 832.00 Income after Tax 1,248.00 Add : Depreciation 1,840.00 Cash flows after Tax 3,088.00
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