BIZOMAT MAKEOS · Money
Equipment Finance Plan (Loan Payment, Depreciation, Tax, Yearly Cash Flow)
If I borrow to buy this machine, does the saving it brings cover the loan payments each year once depreciation and tax are counted?
Yearly cash-flow plan for a machine bought with a loan: the level loan payment from the purchase price, rate and term (capital recovery factor as the interest and equivalence factors tool), the interest and principal in each payment, the depreciation in each year by straight line, sum of the years’ digits or double declining balance (as the depreciation schedule tool), tax on the saving less depreciation and interest, and the after-tax cash flow each year and in total, checked for any year with a shortfall.
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How this tool works
Inputs, units and where to find them
| Input | Unit | Typical source |
|---|---|---|
| Machine cost | AUD | Price of the machine, all borrowed. |
| Salvage value at end of life | AUD | Value at the end of the depreciation life. |
| Depreciation life | years | Years over which the machine is depreciated. |
| Depreciation method | choice | Depreciation method. |
| Loan | ||
| Loan interest rate | % | Annual interest rate of the loan. |
| Loan term | years | Years over which the loan is repaid in equal annual payments. |
| Operation | ||
| Yearly operating saving or extra profit | AUD | Pre-tax saving or extra profit the machine brings each year. |
| Tax rate | % | Income tax rate on profit. |
What each input means
Open an input to see what it is, its units, the worked example and the common mistakes, with a small diagram.
What this means: Machine cost
- What it is
- The price of the machine, which this plan assumes is fully borrowed and is also the starting value for depreciation.
- Units and format
- Enter a number in AUD: Australian dollars. The form accepts 0.000001 AUD or more. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 100000 AUD as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Loan payments and depreciation rise in proportion to the cost.
- Get it right
- Include delivery and installation if they are financed and depreciated with the machine.
What this means: Salvage value at end of life
- What it is
- The value you expect the machine to have at the end of its depreciation life, which is not depreciated.
- Units and format
- Enter a number in AUD: Australian dollars. The form accepts 0 AUD or more. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 10000 AUD as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A higher salvage value lowers the yearly depreciation.
- Get it right
- It must be less than the cost; confirm the value to use for tax with your accountant.
What this means: Depreciation life
- What it is
- The number of years over which the machine is depreciated, which may differ from the loan term.
- Units and format
- Enter a number in years: years. The form accepts 1 years to 50 years. Use a whole number. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 5 years as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A shorter life gives larger deductions in the early years.
- Get it right
- The depreciation life allowed for tax is set by the tax authority’s rules; check with your accountant.
What this means: Depreciation method
- What it is
- How the depreciable amount is spread over the depreciation life: evenly, or weighted to the early years.
- Units and format
- Choose one of 3 options from the list: Straight line; Sum of the years’ digits; Double declining balance (200% ÷ life).
- Example
- The form opens with “Straight line” selected as a worked example. Choose the option that matches your case.
- Get it right
- Choose the method your accountant uses for tax; the methods differ mainly in how much is deducted in the early years.
Loan
What this means: Loan interest rate
- What it is
- The yearly interest rate charged on the loan, from the lender’s offer.
- Units and format
- Enter a number in %: percent: the number is read as a percentage, so type 8 for 8 %. The form accepts 0% to 100%. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 8% as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A higher rate raises the yearly payment and the interest paid.
- Get it right
- Type the percentage itself (for example 8, not 0.08).
What this means: Loan term
- What it is
- The number of years over which the loan is repaid in equal yearly payments.
- Units and format
- Enter a number in years: years. The form accepts 1 years to 50 years. Use a whole number. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 5 years as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A longer term lowers each payment but raises the total interest.
Operation
What this means: Yearly operating saving or extra profit
- What it is
- The extra profit or operating saving the machine brings each year, before tax and before loan payments.
- Units and format
- Enter a number in AUD: Australian dollars. The form accepts 0 AUD or more. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 30000 AUD as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Each extra dollar raises the after-tax cash flow by one minus the tax rate.
- Get it right
- Count only cash gains you will actually achieve, such as labour saved or extra contribution from new work.
What this means: Tax rate
- What it is
- The income tax rate applied to the business’s profit, used to work out the tax on the saving after depreciation and interest deductions.
- Units and format
- Enter a number in %: percent: the number is read as a percentage, so type 8 for 8 %. The form accepts 0% to 100%. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 30% as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Get it right
- Use your business’s actual tax rate and confirm the treatment with your accountant.
Method and formulas
- Payment = cost × A/P with A/P = i(1 + i)ⁿ ÷ [(1 + i)ⁿ − 1] (as the interest and equivalence factors tool); interest = rate × opening balance.
- Depreciation by the chosen method (as the depreciation schedule tool).
- Tax = rate × (saving − depreciation − interest); cash flow = saving − payment − tax.
- Example: the loan costs 25,046 AUD a year; year 1 nets 3,754.4 AUD after tax and the worst year 1,910.9 AUD.
Limitations
- Annual payments and end-of-year cash flows; real loans are usually monthly.
- Tax treatment simplified: losses are assumed to offset other profit in the same year.
- Example values are illustrations. Replace them with values for your actual task.
Typical uses
- Test whether a financed machine pays its way each year
- Compare depreciation methods for cash flow
- Prepare a purchase case for a lender
Who it is for
- Business owners
- Finance managers
- Engineering managers
What you get
- Loan payment and interest each year
- Depreciation and tax each year
- After-tax cash flow each year and in total
Interpreting the result
- Accelerated depreciation helps early cash flow but leaves less to deduct later.
References
- Machinery’s Handbook, 29th edition (Industrial Press, 2012), printed pp. 134–140. Topic reference; no source tables or recommended settings are reproduced.
Learn the Concepts Behind This Tool
These BIZOMAT Library readings explain the method this tool uses, with worked examples.
Method explained here · BIZOMAT original book
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What it covers: How to value a factory array's energy by self-consumption and export, build the business case with NPV, IRR and payback, test it at a P90 yield and a shorter stay, and plan the loan.
BIZOMAT tools are screening and decision-support utilities. Verify important financial, engineering, safety, legal or operational decisions using appropriate professional standards and your organisation’s approved data.
Open the Equipment Finance Plan (Loan Payment, Depreciation, Tax, Yearly Cash Flow) calculator