Vanguard solar system is building a new manufacturing facility to be used for th

Question

Vanguard solar system is building a new manufacturing facility to be used for the production of solar panels. Vanguard uses an MARR of 15% and an MACRS depreciation on its assets and is in the 35% tax bracket. The building will cost 2.75 million, and equipment, 3 year property, will cost 1.55 million plus installation cost of 135000. operation and maintenance costs are expected to be 1.3 million the first year increasing 6% annually. If the facility opens in the month of March and cells are shown, determine the present worth of the after-tax cash flows for the first 5 years of operation.

year.       sales
1.            2100000
2.            3200000
3.           3800000
4             4500000
5.            5300000

Explanation / Answer

Present worth of the after-tax cash flows for the first 5 years of operation = $ 5815338.66

Net Present Value = Present worth of the after-tax cash flows for the first 5 years of operation - Initial investment

Net Present Value = 5815338.66 - 4435000

Net Present Value = 1380338.66

Working

Depreciation on Building & Equipment

Building & Equipment cost = 2750000 + 1550000+135000 = $ 4435000

1st Year = 4435000*33.33% = $ 1,478,185.50

2nd Year = 4435000*44.45% = $ 1971357.50

3rd Year = 4435000*14.81% = 656823.5

4th Year = 4435000*7.41% = 328633.50

Year Sales operation and maintenance costs Depreciation Net Income before tax Tax Expenses [a] [b] [c] [d = a-b-c] [ e = d*35%] 1 2100000                1,300,000.00     1,478,185.50     (678,185.50)     (237,364.93) 2 3200000                1,378,000.00     1,971,357.50     (149,357.50)        (52,275.13) 3 3800000                1,460,680.00         656,823.50    1,682,496.50        588,873.78 4 4500000                1,548,320.80         328,633.50    2,623,045.70        918,066.00 5 5300000                1,641,220.05 0    3,658,779.95    1,280,572.98 Net Income After Tax cash flow PV Factor @ 15% Present worth [f = d-e] [g = f+c] [h] [I = g*h]     (440,820.58)                1,037,364.93               0.86957        902,056.46        (97,082.38)                1,874,275.13               0.75614    1,417,221.27    1,093,622.73                1,750,446.23               0.65752    1,150,946.81    1,704,979.71                2,033,613.21               0.57175    1,162,724.95    2,378,206.97                2,378,206.97               0.49718    1,182,389.18 Sum =    5,815,338.66

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