All Coal Mines Ltd. (ACM) a mining company is evaluating a new plant for a coal mine.
Question:
All Coal Mines Ltd. (ACM) a mining company is evaluating a new plant for a coal mine. The plant has a life of ten years and ACM has been given the following estimates that relate to running the new plant. New buildings to house the plant $670,000 and cost of plant $760,000. The buildings can be sold for $31,000 in ten years, but the plant will have no value in ten years' time. The new plant will increase maintenance costs from $13,000 to $26000 a year and head office costs attributable to the project that will not change is $23,000 a year. ACM depreciates all assets over a ten life span the same as the project. The taxation office has provided advice to ACM that buildings are depreciated for tax over 35 years and equipment 11 years. The project will require an investment in inventory of $125,000 at the start of the project. The annual cash sales are estimated to be $1.78 million and cash operating costs are $0.784 million. The interest on the loan is $10,000 per year. What is the yearly incremental operating cash flow to the nearest dollar for this project given the company tax rate is 30%?