Serendipity is an Internet Service Provider that has a major investment in computer and telecoms equipment, which needs replacement on a regular basis. The company has recently evaluated a $5 million equipment-replacement programme, which has an expected life of five years. The proposal is supported by the data in. Serendipity – capital investment evaluation.
|
In $1000 |
Year 0 |
1 |
2, |
3 |
4 |
5 |
6 |
|
Capital investment |
5,000 |
|
|
|
|
|
|
|
Depreciation 20% p.a. |
|
1,000 |
1,000 |
1,000 |
1,000 |
1,000 |
|
|
Asset value end of year |
|
4,000 |
3 000 |
2 000 |
1,000 |
0 |
|
|
Profit |
|
|
|
|
|
|
|
|
Additional income |
|
1,500 |
2,000 |
2,500 |
2,500 |
2,500 |
|
|
Additional expenses |
|
-150 |
-350 |
-500 |
-500 |
-500 |
|
|
Depreciation |
|
-1,000 |
-1,000 |
-1,000 |
-1,000 |
-1,000 |
|
|
Profit |
|
350 |
650 |
1,000 |
1,000 |
1,000 |
|
|
Tax @ 35% |
|
-105 |
-195 |
-300 |
-300 |
-300 |
|
|
Profit after tax |
|
245 |
455 |
700 |
700 |
700 |
|
|
ROI |
|
6.1% |
15.2% |
35.0% |
70.0% |
n/a |
|
|
Cash flow |
|
|
|
|
|
|
|
|
Capital investment |
-5,000 |
|
|
|
|
|
|
|
Cash receipts |
|
1,500 |
2,000 |
2,500 |
2,500 |
2,500 |
|
|
Additional expenses |
|
-150 |
-350 |
-500 |
-500 |
-500 |
|
|
Tax @ 35% |
|
|
-105 |
-195 |
-300 |
-300 |
-300 |
|
Net cash flow |
-5,000 |
1,350 |
1,545 |
1,805 |
1,700 |
1,700 |
-300 |
|
Discount rate |
8% |
|
|
|
|
|
|
|
Net present value |
$1,225 |
|
|
|
|
|
|