Fill in the income and cashflow statement for the following scenario. Please be careful the spreadsheet is a little fragile.

You have the option of replacing your existing car, has a book value of \$12,000, and which you can sell for \$15,000, with a new car that costs \$22,000. The new car is expected to save you \$5,000 per year in years one through three. Assume you can sell the car for its book value in year three.

Your firm faces a combined tax rate of 50% and a MARR of 5%.

Income Statement
- For operating income, we don't talk about any money coming in so it is 0\$ for each year.
- For operating expenses, it says we save \$5000 dollars each year, so that would be from operating costs.
- Depreciation is calculated knowing that a car is a 5 year asset, so we would take the MACRS for that and multiply it by \$22000 for each year, with half the amount multiplied in year 2, since it is being sold that year. I think there would also be some depreciation from the car that is being sold, since it still has a book value of \$12,000, but since we don't know it's original price or how many years it is been depreciated, we will ignore that.
- Interest is zero since there is no loan that was taken.
- Taxable income is the operating income - operating expenses - depreciation - taxable income.
- Tax is our tax rate of 5% times the taxable income
-Net income is our taxable income - tax

Cash Flow Statement
- Net Income is just a clone from the income statement
- Deprecation is also the same as the amounts on the income statement
- Car (fixed asset) must be added to account for the buying and selling of cars. In year 0 the new car is bought and the old car is sold, resulting in a net loss of cash. Then in year 2 the new car is sold so there is a gain of cash, but it is only sold for its book value, which is the original cost of the car - the amount it has depreciated each year.
- Working Capital doesn't change since it has to do with changes in inventory or accounts recievable.
- The old car was sold for \$3000 more than the book value in year 0, so it must be taxed. Multiply it by the tax rate, 5%, to get it. Even though it is money that is leaving, remember that it should be positive on the cash flow statement. Then in year 2 their is no gains tax since it sold for its book value.
- No loans were given, so they are all zero.
- Net cash flow sums up every column in the cash flow statement for that year, except for gains tax. That is subtracted.

I added the present worth for this situation using an MARR of 5% as well

page revision: 6, last edited: 17 May 2016 00:32