b. Using NPV analysis, should the company purchase the machine? Assume its cost of capital is 10%.
Fantastic news! We've Found the answer you've been seeking!
Question:
b. Using NPV analysis, should the company purchase the machine? Assume its cost of capital is 10%. Show all your workings.
c. What is the payback period for this project? If the company’s payback cut-off is 4 years, should the project be accepted? Show all your workings.
Transcribed Image Text:
ABC Ltd is manufactures ladies clothing. ABC Ltd is considering expanding into menswear and has agreed to a five-year trial period. ABC Ltd needs to buy a new machine in which will cost $100,000 and will be depreciated straight line for 10 years. After five years, ABC Ltd will sell the machine for $50,000. ABC Ltd estimates that its menswear line will increase sales by $45,000 per year for the next 5 years. Cost of goods sold are 45% of sales. The new line of menswear will require initial working capital of $5,000 which will be fully recoverable at the end of the project. The company tax rate is 30% a. Estimate the after-tax cash flows for the project. To do this you must present two tables. The first table should show the inputs of the accounting flows to determine the after-tax income. The second table should show the inputs to determine the after-tax cash flows. (This means you should NOT use the tax shield approach). IMPORTANT: You must show each input in your table as a separate row. DO NOT group inputs together. Show all your workings. ABC Ltd is manufactures ladies clothing. ABC Ltd is considering expanding into menswear and has agreed to a five-year trial period. ABC Ltd needs to buy a new machine in which will cost $100,000 and will be depreciated straight line for 10 years. After five years, ABC Ltd will sell the machine for $50,000. ABC Ltd estimates that its menswear line will increase sales by $45,000 per year for the next 5 years. Cost of goods sold are 45% of sales. The new line of menswear will require initial working capital of $5,000 which will be fully recoverable at the end of the project. The company tax rate is 30% a. Estimate the after-tax cash flows for the project. To do this you must present two tables. The first table should show the inputs of the accounting flows to determine the after-tax income. The second table should show the inputs to determine the after-tax cash flows. (This means you should NOT use the tax shield approach). IMPORTANT: You must show each input in your table as a separate row. DO NOT group inputs together. Show all your workings.
Expert Answer:
Answer rating: 100% (QA)
Year 0 1 2 3 4 5 cost of machine 100000 investment in working capital 5000 sales 45000 45000 45000 4... View the full answer
Related Book For
Accounting For Cambridge International AS And A Level
ISBN: 9780198399711
1st Edition
Authors: Jacqueline Halls Bryan, Peter Hailstone
Posted Date:
Students also viewed these economics questions
-
Your companys weighted-average cost of capital is 11 percent. It is planning to undertake a project with an internal rate of return of 14 percent, but you believe this project is not a wise...
-
Assume that the opportunity cost of capital is 25%. Provide a plot of the relation between the hurdle rate used by a manager for projects and the manager's tenure?
-
Assume the firms after tax cost of capital is 6% per annum. What is the benefit of deferring $ 1 of income for 1 year, for 2 years, and for 5 years assuming the firms marginal tax rate is 35%?...
-
Following the 2017 General Election and change of government, the Labour-led coalition government established a Tax Working Group (TWG) to consider the overall structure, balance and fairness of the...
-
On December 31, 20, the following selected accounts and amounts appeared on the balance sheet for Duncan Company. Determine the amount of the working capital and the current ratio. (Round to two...
-
Find the total area between the region and the x-axis. y = x 3 - 3x 2 + 2x, 0 x 2
-
(a) Derive a general expression for the response of a uniform beam subjected to an arbitrary force. (b) Use the result of part (a) to find the response of a uniform simply supported beam under the...
-
A paper recycling company converts newspaper, mixed paper, white office paper, and cardboard into pulp for newsprint, packaging paper, and print-stock quality paper. The recycler is currently trying...
-
A business's success depends on the accuracy of its prediction of consumer 's expectation and the ability to bridge the gap between those expectations and operating capabilities. However, changes in...
-
Siya Dlamini is a partner at a law firm. He is 4 0 years old and unmarried. He has incurred a number of expenses during the 2 0 2 3 year of assessment. He would like to know if they are deductible in...
-
Exhibit 2. Consider the following network. The activity durations (in days) are shown in the nodes, the variance of all activities is 1 day except for activities D, F, and G; their variance is 2...
-
1. A firm uses a fixed time period model to manage a type of bolts they keep in inventory. The average daily demand for the bolts is 41 with a standard deviation of 3. An order is placed every 35...
-
The opening sentence of the new directive (of mid-May 1938) made Hitler's wishes clear: "It is not my intention to smash Czechoslovakia by military action in the immediate future without provocation....
-
Not all companies have expertise in managing their own logistics system so they look for experts to manage logistics needs. We call these experts logistics service providers (LSP) or third-party...
-
Question 5 [10 Marks] Jonny Depp an audit senior at Amber Heard Pty Ltd, a large international audit firm. He has been asked by the audit partner to evaluate the following audit risks of a major...
-
(a) Joe & Donald (J&D) Pty Ltd is a fast-growing manufacturing company. J&D is by far your largest audit client. While conducting the audit you discovered that several engagements were potentially in...
-
sh) Question 17 of 50 What is not a significant cost of being publicly listed? Opotential that founders will lose control of their company O increased level of the risk-free rate DII % 5 O pressure...
-
Draw a Feynman diagram for the reaction n + v p + .
-
The treasurer of the Grandford Sports Club provided the following information at the end of the club's most recently completed financial year ended 31 March 2015. At 1 April 2014 the club's assets...
-
Faye is a florist. The following information is available for the year ended 30 November 2014. Prepare the trading section of an income statement for the year ended 30 November 2014. $ Inventory at 1...
-
Kelly and Leo have been in partnership for a number of years sharing profits and losses in the ratio of their fixed capitals. The following balances appeared in the partnership's books at 31 December...
-
Each of the three balls has a mass \(m\) and is welded to the rigid equiangular frame of negligible mass. The assembly rests on a smooth horizontal surface. If a force \(\mathbf{F}\) is suddenly...
-
A sample \(\left(X_{i}, Y_{i} ight), i=1, \ldots, n\), is collected from a population with \(E(Y \mid X)=\beta_{0}+\beta_{1} X\) and used to compute the least squares estimators \(\hat{\beta}_{0}\)...
-
a. Show that the regression \(R^{2}\) in the regression of \(Y\) on \(X\) is the squared value of the sample correlation between \(X\) and \(Y\). That is, show that \(R^{2}=r_{X Y}^{2}\). b. Show...
Study smarter with the SolutionInn App