Chicago Value Company Case
Essay title: Chicago Value Company Case
Explain the inputs into 1) the net initial investment outlay at year 0, the initial investment $200,000 which include taxes and delivery, and the cost to install the equipment $12,500. The total net cost $212,500. 2) The depreciation tax savings in each year of the projects economic life, this will show how much the tax savings will be depreciated each year using the MACRS method 3) the projects incremental cash flows? This shows the company profit for each of the eight years.
Net Cost
MACRS
Tax Rate
Depreciation Tax Savings
$ 212,500
$ 42,500
$ 17,000
$ 212,500
$ 68,000
$ 27,200
$ 212,500
$ 40,375
$ 16,150
$ 212,500
$ 25,500
$ 10,200
$ 212,500
$ 23,375
$ 9,350
$ 212,500
$ 12,750
$ 5,100
What is the project’s NPV? The Net Present Value is $36,955.09 Explain the economic rationale behind the NPV. Economists found much of their analyses on a marketplace where supply and demand are based on the perceptions of present value and scarcity. The Net Present Value (NPV) are calculations used to estimate the value over a lifetime which in this case would be of Chicago Valve’s standard petroleum valve systems. NPV allows decision makers to compare various alternatives on a similar time scale by converting all options to current dollar figures. Could the NPV of this particular project be different for Lone Star Petroleum Company than for one of Chicago Valve’s other potential customers? A project is deemed acceptable if the net present value is positive over the expected lifetime of the project.
Project Net Cash Flows
Year
Net Cost
Depreciation Tax Saving
After-Tax Cost Savings
Net Cash Flow
-212,500
-212,500
17000
36000
53000
27200
36000
63200
16150
36000
52150
10200
36000
46200
36000
45350
36000
41100
36000
36000
36000
36000
Calculate the proposed project’s IRR. The proposed project IRR is 16.20% explain the rationale for using the IRR to evaluate capital investment projects. The Internal Rate of Return (IRR) is a capital budgeting method used to decide whether they should make loam term investments. The IRR is defined as any discount