New drying Equipment Existing drying Equipment

Operating Cash Cost 10.00 Operating Cash Cost 28

Depreciation(WDV) 25.00% Cost of Equipment (in 1997) 25
Useful Life (Years) 12 Useful Life (Years) 8
Salvage Value(% of Orginal Value) 10% Installation Cost (in 1997) 10
Delivery Time (Months) 12 Salvage Value - Now (1999) 4
Installation Cost 15 Salvage Value - End (2004) 2
Payment @ Order 32.5
Payment @ Delivery 32.5

Operating Cost

% of Fuel Cost 80%

% Annual Rise in Fuel Cost 10%
Inflation 6%

Over All Inflation 9.20%

 Overhauling drying Equipment

Operating Cash Cost 22

Capital Expenditure 25
Life Extension 5
New Useful Life 13
Salvage Value - End (2009) 3

Debt Option

Years 10
Annual 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%

 Depreciation Book Value Depreciation Book Value
N0. Year
(Old Machine) (Old Machine) (New Machine) (New Machine)

1997 8.75 26.25

1998 6.56 19.69
1999 4.92 14.77
1 2000 3.69 11.07 22.69 68.07
2 2001 2.77 8.31 17.02 51.06
3 2002 2.08 6.23 12.76 38.29
4 2003 1.56 4.67 9.57 28.72
5 2004 1.17 3.50 7.18 21.54
6 2005 0.88 2.63 5.38 16.15
7 2006 0.66 1.97 4.04 12.12
8 2007 0.49 1.48 3.03 9.09
9 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 3.83
12 2011 0.16 0.47 0.96 2.88

Value of New Machine

Value on New Machine 80

Salvage Value -4
BV of Old Machine 14.77
Net Value 90.77
 Tax Saving Tax Saving Incremental Benefit Investment
PAT
(Old Depreciation) (New Depreciation) (Depreciation) Allowance

1.29 7.94 6.65 11.70 7.00

0.97 5.96 4.99 11.70
0.73 4.47 3.74 11.70
0.55 3.35 2.81 11.70
0.41 2.51 2.10 11.70
0.31 1.88 1.58 11.70
0.23 1.41 1.18 11.70
0.17 1.06 0.89 11.70
0.13 0.80 0.67 11.70
0.10 0.60 0.50 11.70
0.07 0.45 0.37 11.70
0.05 0.34 0.28 11.70
Tax Shield Salvage Net Cash Flow
Net Cash Flow PV of NCF
(Loss) Value (Without Inv. All)

3.77 4 33.12 28.55 26.12

16.69 12.40 16.69
15.44 9.89 15.44
14.51 8.01 14.51
-2 11.80 5.62 11.80
13.28 5.45 13.28
12.88 4.56 12.88
12.59 3.84 12.59
12.37 3.25 12.37
12.20 2.77 12.20
12.07 2.36 12.07
8 19.98 3.37 19.98

PV 90.07 PV
Cash Out Flow 85.2 Cash Out Flow

NPV 4.87 NPV

 PV of NCF
(Without Inv.
All)

22.52
12.40
9.89
8.01
5.62
5.45
4.56
3.84
3.25
2.77
2.36
3.37

84.03
85.2

-1.17
 Depreciation Book Value Depreciation
N0. Year
(Old Machine) (Old Machine) (New Machine)

1997 8.75 26.25

1998 6.56 19.69
1999 4.92 14.77
1 2000 3.69 11.07 22.69
2 2001 2.77 8.31 17.02
3 2002 2.08 6.23 12.76
4 2003 1.56 4.67 9.57
5 2004 1.17 3.50 7.18
6 2005 0.88 2.63 5.39
7 2006 0.66 1.97 4.04
8 2007 0.49 1.48 3.03
9 2008 0.37 1.11 2.27
10 2009 0.28 0.83 1.70
11 2010 0.21 0.62 1.28
12 2011 0.16 0.47 0.96

Value of New Machine

Value on New Machine 80

Salvage Value -4
BV of Old Machine 14.77
Net Value 90.77
 Book Value Tax Saving Tax Saving Incremental Benefit
(New Machine) (Old Depreciation) (New Depreciation) (Depreciation)

68.08 1.29 7.94 6.65

51.06 0.97 5.96 4.99
38.29 0.73 4.47 3.74
28.72 0.55 3.35 2.81
21.54 0.41 2.51 2.10
16.16 0.31 1.88 1.58
12.12 0.23 1.41 1.18
9.09 0.17 1.06 0.89
6.82 0.13 0.80 0.67
5.11 0.10 0.60 0.50
3.83 0.07 0.45 0.37
2.88 0.05 0.34 0.28
 Investment Tax Shield Salvage
PAT Net Cash Flow PV of NCF
Allowance (Loss) Value

12.78 7.00 3.77 4 34.19 29.48

13.95 18.94 14.08
15.24 18.98 12.16
16.64 19.44 10.74
18.17 -2 18.27 8.70
19.84 21.42 8.79
21.66 22.85 8.08
23.66 24.55 7.49
25.83 26.50 6.97
28.21 28.71 6.51
30.81 31.18 6.09
33.64 8 41.92 7.06

PV 126.14
Cash Out Flow 85.2

NPV 40.94
 PV of NCF
Net Cash Flow
(Without Inv.
(Without Inv. All)
All)

27.19 23.44
18.94 14.08
18.98 12.16
19.44 10.74
18.27 8.70
21.42 8.79
22.85 8.08
24.55 7.49
26.50 6.97
28.71 6.51
31.18 6.09
41.92 7.06

PV 120.11
Cash Out Flow 85.2

NPV 34.91
 Depreciation Book Value Depreciation Book Value
N0. Year
(Old Machine) (Old Machine) (OH) (OH)

1997 8.75 26.25

1998 6.56 19.69
1999 4.92 14.77
1 2000 3.69 11.07 9.94 29.82
2 2001 2.77 8.31 7.46 22.37
3 2002 2.08 6.23 5.59 16.78
4 2003 1.56 4.67 4.19 12.58
5 2004 1.17 3.50 3.15 9.44
6 2005 0.88 2.63 2.36 7.08
7 2006 0.66 1.97 1.77 5.31
8 2007 0.49 1.48 1.33 3.98
9 2008 0.37 1.11 1.00 2.99
10 2009 0.28 0.83 0.75 2.24

Value of OH Machine

Value 25
Old BV 14.77
Net Value 39.77
 Tax Saving Tax Saving Incremental Benefit Investment Salvage
PAT
(Old Depreciation) (OH) (Depreciation) Allowance Value

1.29 3.48 2.19 3.90 2.19

0.97 2.61 1.64 3.90
0.73 1.96 1.23 3.90
0.55 1.47 0.92 3.90
0.41 1.10 0.69 3.90 -2
0.31 0.83 0.52 3.90
0.23 0.62 0.39 3.90
0.17 0.46 0.29 3.90
0.13 0.35 0.22 3.90
0.10 0.26 0.16 3.90 3
 Net Cash Flow PV of NCF
Net Cash Flow PV of NCF
(Without Inv. All) (Without Inv. All)

8.28 6.90 6.09 5.07

5.54 3.85 5.54 3.85
5.13 2.97 5.13 2.97
4.82 2.33 4.82 2.33
2.59 1.04 2.59 1.04
4.42 1.48 4.42 1.48
4.29 1.20 4.29 1.20
4.19 0.97 4.19 0.97
4.12 0.80 4.12 0.80
7.06 1.14 7.06 1.14

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

NPV -2.33 NPV -4.15

 Depreciation Book Value Depreciation Book Value
N0. Year
(Old Machine) (Old Machine) (OH) (OH)

1997 8.75 26.25

1998 6.56 19.69
1999 4.92 14.77
1 2000 3.69 11.07 9.94 29.82
2 2001 2.77 8.31 7.46 22.37
3 2002 2.08 6.23 5.59 16.78
4 2003 1.56 4.67 4.19 12.58
5 2004 1.17 3.50 3.15 9.44
6 2005 0.88 2.63 2.36 7.08
7 2006 0.66 1.97 1.77 5.31
8 2007 0.49 1.48 1.33 3.98
9 2008 0.37 1.11 1.00 2.99
10 2009 0.28 0.83 0.75 2.24

Value of OH Machine

Value 25
Old BV 14.77
Net Value 39.77
 Tax Saving Tax Saving Incremental Benefit Investment Salvage
PAT
(Old Depreciation) (OH) (Depreciation) Allowance Value

1.29 3.48 2.19 4.26 2.19

0.97 2.61 1.64 4.65
0.73 1.96 1.23 5.08
0.55 1.47 0.92 5.55
0.41 1.10 0.69 6.06 -2
0.31 0.83 0.52 6.61
0.23 0.62 0.39 7.22
0.17 0.46 0.29 7.89
0.13 0.35 0.22 8.61
0.10 0.26 0.16 9.40 3
 Net Cash Flow PV of NCF
Net Cash Flow PV of NCF
(Without Inv. All) (Without Inv. All)

8.63 7.19 6.45 5.37

6.29 4.37 6.29 4.37
6.31 3.65 6.31 3.65
6.47 3.12 6.47 3.12
4.75 1.91 4.75 1.91
7.13 2.39 7.13 2.39
7.61 2.12 7.61 2.12
8.18 1.90 8.18 1.90
8.83 1.71 8.83 1.71
12.57 2.03 12.57 2.03

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

NPV 5.40 NPV 3.58

 Computed NPV's for various Combinations

Existing Vs New Equipment Without Inflation

With Investment Allowance 4.87

Without Investment Allowance -1.17

Existing Vs Overhauling Without Inflation

With Investment Allowance -2.33

Without Investment Allowance -4.15
binations

With Inflation

40.94
34.91

With Inflation

5.40
3.58